Mexico hits back with pork, bourbon tariffs

Mexico imposed wide-ranging tariffs on American products ranging from steel to pork and bourbon on Tuesday, responding to President Donald Trump’s metals tariffs and taking aim at Republican strongholds ahead of U.S. congressional elections in November.

Mexico’s retaliation further raises trade tensions between the two countries, which have been echoed in dealings between Washington and Ottawa. Trump last week rattled some of the closest U.S. allies by removing an exemption to tariffs on imported steel and aluminum that his administration had granted to Mexico, Canada and the European Union.

Meanwhile, Trump advisor Larry Kudlow revived the possibility on Tuesday that the president will seek to replace the trillion dollar North American Trade Agreement (NAFTA) with bilateral deals with Canada and Mexico.

Following news of the new Mexican tariffs, which take effect immediately, the peso tumbled to its weakest level since February 2017, leading losses among major currencies.

Mexico’s retaliatory list included a 20 percent tariff on U.S. pork legs and shoulders, apples and potatoes and 20 to 25 percent duties on types of cheeses and bourbon, the Mexican economy ministry said in the government’s official gazette

A range of U.S. steel products will be hit by 15 percent to 25 percent tariffs. Mexico is a net importers of U.S. steel.

Separately, Mexico opened a tariff-free quota for pork imports from other countries.

It was not immediately clear where Mexican importers would buy pork from under the quota, which it said was opened to avoid an increase in the price of the meat used in many traditional dishes. No. 2 supplier Canada enjoys duty free access to Mexico under NAFTA, while the European Union was already gearing up to export more to Mexico under a recently reworked trade pact.

Brazil is another potential beneficiary.

Mexico’s trade negotiators designed the list, in part, to include products exported by top Republican leaders’ states, including Indiana where Vice President Mike Pence was formerly governor, according to a trade source familiar with the matter. Bourbon-producing Kentucky is the home state of Senate Majority Leader Mitch McConnell.

Mexico announced its response to Trump’s move late last week, with a focus on products from congressional districts that Trump’s Republican party is fighting to retain in November’s mid-term elections. It did not provide details of tariff levels or a full list of products at the time.

Mexico’s Economy Minister Ildelfonso Guajardo said last week that products were chosen to hit districts with important lawmakers who had been warning Trump not to mess with Mexico. He estimated the U.S. tariffs would affect $4 billion in trade between the two countries.

Pork exporter Iowa, where incumbent Representative Rod Blum is seen as vulnerable, is an example of a place Mexico’s reaction could hurt Trump’s party.

Trump’s administration imposed tariffs of 25 percent on imported steel and 10 percent on aluminum in March, citing national security grounds. Last week Washington said it was moving ahead with the metals tariffs on imports from Canada, Mexico and the European Union, ending a two-month exemption.

Mexico’s economy ministry said on Monday it would start a dispute settlement process at the World Trade Organization over the U.S. tariffs, joining the European Union in seeking WTO involvement against the new measures.


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell