NEW YORK, June 3 (Xinhua) -- The latest rounds of tariff hikes launched by the United States and the retaliatory response by its major trading partners will weigh heavily on the U.S. economy at a time when it is already losing momentum, analysts have said.

U.S. President Donald Trump on Thursday said he would impose a 5-percent tariff on all imported Mexican goods on June 10 and gradually increase it to 25 percent in October if Mexico does not stop the flow of illegal migration into the U.S., making Mexico a new target of U.S. tariff lashing after striking China and threatening levies on cars from Europe and Japan.

While Trump's announcement could be challenged by Congress, "the possibility that both Mexican and Chinese imports might be subject to a blanket 25-percent tariff presents a significant additional downside risk to the U.S. economy, at a time when it already appears to be losing momentum," Capital Economics, an economic analysis firm in London, said in a recent report.

Mark Haefele, global chief investment officer of UBS Wealth Management, said in a report on Monday if the tariffs were implemented, the impact on U.S. gross domestic products could be significant.

According to data released by the Office of the United States Trade Representative (USTR), the United States imported 371.9 billion U.S. dollars of goods from Mexico in 2018, more than the imports from China currently subject to tariffs.

"A 25-percent tariff on Mexican goods as well would risk the U.S. falling into recession," Haefele said.

Analysts also said that it would be hard for U.S. consumers to avoid price rises. "A 25-percent tariff could raise 90 billion dollars in customs duties and increase domestic prices by at least 0.4 percent," according to Capital Economics.

Last month, a study published on Federal Reserve Bank of New York's website said that the latest round of U.S. tariffs on Chinese goods would impose a total annual cost of 831 dollars on a typical U.S. household.

The auto industry would be most severely disrupted. According to the USTR, the United States imports about 93 billion dollars of vehicles from Mexico in 2018 with integrated supply chains, meaning that many components cross the border several times during production.

Trump's tariff announcement on Mexico would also leave U.S. companies few choices to minimize the impact.

Switching to other suppliers is very challenging for U.S. companies in the case of Mexico as the production lines are greatly intertwined, according to a report by the Bank of America Merrill Lynch.

According to the report, companies could pass the tax on to the end consumer, which could help margins but will hurt consumers and ultimately suppress company revenues.

Haefele noted that the impact would also be felt outside the United States as all major European car manufacturers and suppliers are active in Mexico.

"If 25-percent tariffs (on goods imported from Mexico) were implemented, we estimate that European auto industry earnings per share (EPS) could be reduced by a mid-single digit percentage, even without taking into account the potential for tariffs on direct European imports," he said.

The latest tariff hikes have also hit the financial markets. U.S. equities posted sharp losses in May, with major indices registering the worst monthly performance of the year. The Dow plunged 6.7 percent, extending a six-week losing streak, the S&P 500 lost 6.6 percent, and the Nasdaq declined 7.9 percent.

The Bank of America Merrill Lynch lowered its 2019 S&P 500 EPS estimate by 1.2 percent to 166 dollars from the previous 168 dollars, and 2020 EPS estimate by 2.2 percent to 176 dollars from 180 dollars.

The bank estimates that new tariffs on China would lower the S&P's EPS by an additional 1 percent, and tariffs on Mexico could represent a 0.6-percent drag in 2019, and then a 1.5-percent drag in 2020. Enditem

Related

Go to Forum >>0 Comment(s)