Will Trump Be A One-Term President Because Of Mexican Tariffs?

Trump Could Be a One-Term President Thanks to Mexican Tariffs

“Tariff Man” strikes again. In a surprise tweet last Thursday, President Donald Trump announced that, beginning June 10, the U.S. would impose a 5 percent tariff on all goods coming into the U.S. from Mexico “until such time as illegal migrants coming through Mexico, and into our Country, STOP.” The tariff is scheduled to rise incrementally to a hefty 25 percent through October.

As I’ve explained elsewhere, including in an interview this week with Kitco’s Daniela Cambone, tariffs are essentially taxes that are paid by U.S.-based importing companies, which then pass the extra expenses along to the end consumer. If Trump’s Mexico tariff goes into effect, in fact, it will be the largest tax hike on Americans in approximately 30 years. As such, tariffs are inflationary. Historically, faster inflation has boosted investor demand for gold, and indeed, the price of the yellow metal crossed above $1,320 an ounce on Monday for the first time since late March.

Gold miners have also increased sharply. The NYSE Arca Gold Miners Index jumped nearly 4 percent in intraday trading on Friday, the group’s biggest one-day gain in two years. The S&P 500 Index, meanwhile, lost some $1.5 trillion in market cap in the month of May.

gold miners surge on market volatility

Investors also sought protection in U.S. Treasuries, whose yields fell to a fresh 2019 low. This pushed the already-inverted yield curve between the 10-year and three-month Treasuries deeper into negative territory. On Friday the yield curve sunk to 17 basis points (bps), its lowest level since well before the financial crisis. An inverted yield curve has preceded every U.S. recession over the last 60 years.

Treasury yield curve inversion falls even further into the negative zone

Tariffs Against Mexico Will Hit Middle-Class Americans

In 2018, the total value of imports from Mexico stood at $346 billion. A 5 percent tariff on this volume amounts to a $17 billion hit on the U.S. economy. At 25 percent, this cost surges to a whopping $87 billion.

1 2 3 4
View single page >> |

Disclosure: All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.
Gary Anderson 1 month ago Contributor's comment

If Trump's goal is to get auto makers to come back to the USA for parts now made in Mexico he is risking an auto industry Depression. He is crazy. He will play golf while Rome burns.