Hidden Impacts of the US-Mexico Trade War

By Mathew Slootsky

On May 30, 2019, the President issued a threat to apply tariffs of up to twenty-five percent on goods imported from Mexico. Although the President later canceled the planned tariffs, he may decide to impose tariffs at a later date. The first thing that comes to mind when reading this for most consumers is, “How will this affect me?”

The popular fast-food restaurant Chipotle experienced a 7% dip in their stock price as a result of the news of the threatened tariffs. Chipotle uses avocados grown in Mexico and sells Corona and Modelo, two Mexican beers. A typical investor would reasonably believe Chipotle to be a reliable stock. Their restaurants are typically busy and there has been impressive expansion throughout much of the United States. But those investors lost a significant amount of value based upon the rumored tariffs. If rumors of the tariff are causing a ripple-down effect, imagine what could happen if these tariffs came into effect? Under this scenario, it is likely that consumers will see additional losses.

Not only is the food and beverage industry at risk for consumers holding securities because of lurking tariffs, there are other industries that are also affected. For example, Samsung Electronics Co. produces many of their televisions in Mexico. The Samsung televisions that are sold to the United States from Mexico could potentially see a price increase. As a result of this possibility, Samsung’s stock also fell on the threatened tariffs news. Additionally, the auto industry is affected by this threatened tariff. Many vehicles are manufactured in Mexico, including Audi, Volkswagen, and others. This rumored tariff will cause an increase in price for these vehicles as well, which will likely cause the stock price to decrease in value.

Many investors believe that a trade war against Mexico may become the catalyst that starts the next recession in the American economy. In fact, a recent study from Duke University showed that the two-thirds of chief financial officers believe that the economy will fall into a recession by the third quarter of next year, as a result of this plausible trade war.

As securities prices fall due to the trade war with Mexico, many investments will likely lose money. Consumers will be hesitant to spend extra money for a Samsung television made in Mexico when they can purchase a Sony television manufactured in a country that is not paying a 25% tariff. Mexican and American trade is heavily intertwined, and a trade war affects nearly every citizen. Automobiles, electronics, and food are only some of the most popular securities that will be directly affected by these tariffs. Many of these securities were previously considered relatively conservative, as the past trade relationship between the United States and Mexico was not only predictable, but very stable. Now, the relationship between these two countries is not as stable as it once was.

Consumers will need to be cognizant about where products are manufactured, and where companies import their goods from. If these tariffs against Mexico are enacted, then consumers may want to avoid investing their hard-earned monies in companies that are doing business in Mexico.