May 31 (UPI) — The surprise announcement by U.S. President Donald Trump to impose new tariffs on Mexico — an effort to stem illegal migration — shook world financial markets Friday, as all three major Wall Street indexes posted significant losses.
Trump said Thursday the United States will impose a 5 percent tariff on all imports from Mexico, emphasizing that it hasn’t done enough to discourage migrants from crossing the U.S. border. Friday, word of the new tariffs positioned indexes around the world for major losses, at least temporarily.
The Dow Jones Industrial Average futures predicted a stock drop of more than 250 points in Friday trading. By 1 p.m., the Dow was down 273 points, the S&P 30 points and the Nasdaq 90 points. The Dow had gained about 30 points before Trump’s announcement Thursday.
In Japan, the Nikkei fell 1.6 percent while European markets opened lower. For example, the FTSE 100 index in Britain and stocks in France tumbled about 1 percent, while German stocks dipped 1.3 percent. Barron’s reported the yield on 10-year Treasuries fell almost 0.1 percent to 2.16 percent — signaling that risks of a recession are rising, analysts said.
Positive government inflation data that came Friday did little to stem the losses. The Commerce Department report said personal consumption expenditures increased by 0.3 percent in April, a key indicator that suggests the U.S. economy is on solid footing. The figure slightly beat the 0.2 percent increase analysts expected. The PCE is used by the Federal Reserve to gauge inflation, which is a major contributor in the board’s decision to raise key interest rates.
The Fed, which prefers to keep inflation near the 2 percent mark, has indicated a strong economy at its policy meetings this year and suggested it may not increase the federal funds rate at all in 2019.
The Mexico tariffs come more than a year into a trade conflict between the United States and China that has included hundreds of billions of dollars worth of tariffs, on both sides.
Trump said in a Twitter post late Thursday the new tariffs will increase gradually until immigrants “coming through Mexico, and into our country, stop.” The new fiscal penalties are set to take effect June 10.
“If the Mexican government is incapable of or unwilling to assist us in resolving the situation at our southern border, that tariff will go to 10 percent on July 1, 15 percent on Aug. 1, 20 percent on Sept. 1 and 25 percent on Oct. 1,” acting White House chief of staff Mick Mulvaney said.
“The current influx of illegal crossings into the United States from Mexico is overwhelming [U.S.] resources,” acting Homeland Security Secretary Kevin McAleenan told reporters Thursday night. “[It] has severely impacted the ability of the department to secure the U.S. border and enforce the immigration laws.
“The current situation is risking the lives of children every day. To address this crisis, Mexico must take significant action.”
Mexican President Andres Manuel Lopez Obrador said in a letter his government is doing all it can to stop unlawful migration from Central America and Mexico.
“Social problems are not solved with duties or coercive measures,” said Obrador, adding he won’t be bullied into action. “Please, remember that I do not lack valor, that I am not a coward nor timorous but rather act according to principles.”
Obrador pushed back at Trump’s “America first” philosophy, saying a “universal fraternity” would go further in overcoming conflicts.
“With all due respect, although you have the right to express it, ‘America first’ is a fallacy because until the end of times, even beyond national borders, justice and universal fraternity will prevail,” he said.