Trump’s goal was to secure Mexico’s cooperation regarding the flow of migrants from Central America travelling to the US via Mexico. In response, the Mexican government immediately sent a senior delegation to Washington with promises of a profound crackdown, including the movement of troops to its own southern border.
Mexican exports to the US amount to 28% of Mexican GDP, with automakers representing the single largest component of that share.
Shares of General Motors rebounded sharply from their initial post-announcement dip, rallying from just north of $33/share to over $36 Wednesday; they closed Thursday at $35.19.
A Deutsche Bank report estimated that GM could take a $6.3 billion hit before interest and taxes if the 5% tariff, itself set to rise to 25% if Washington is not satisfied with the Mexican response, goes into effect.
The risk now is that markets may be too willing to bet on the Republican Party’s traditional free-trade orthodoxy carrying the day. Yesterday, Trump told Fox News that automakers “should be ashamed” of resisting his tariff plan, claiming that the Central American migrant inflow is a key national security issue.
The situation remains risky and headline-driven for automotive sector investors, with shares of GM and other carmakers likely to re-test local lows on any sign that Trump means business.
GM shares, post-rebound, are nearing longer-term resistance just shy of $36 into Friday’s New York session.
Investors should be cautious of the steep headline risks as talks head into Monday; the GOP may be aghast at Trump’s latest deployment of protectionist measures, but the president is unlikely to welcome appearing as a paper tiger in the midst of the broader trade conflict with China.
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