The Mexican Tariff Reaction

Signals suggest White House tariff threat may be more serious than markets assume

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At the end of last week, President Trump announced that starting June 10, the United States would impose a 5 percent tariff on all Mexican imports unless the country alleviated the “illegal migration crisis” at the southern border. The administration added that the tariffs would rise in subsequent months, up to 25 percent by October.

The announcement drew strong recrimination from the US business community, and stock prices for US businesses that stand to be affected, automakers especially, fell. However, the 1.4 percent drop in the Dow Jones Industrial Average was not particularly significant or unique in the past several months. Some commentators suggested markets were assuming Trump would back down and underpricing the risk that he actually followed through on the threat.

The reaction in the digital realm, however, suggests some observers, in Mexico especially, may be taking the threat more seriously. Trump’s announcement drove Predata’s Mexico country signal, an indicator of aggregate online activity related to the nation, to its highest level of the year. One way to interpret that trend is that online audiences perceived the tariff threat to be the year’s most significant news event related to Mexico.

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Moreover, attention to the Mexican economy rose to its highest level of the year. The signal was higher than it was when President Trump threatened to close the US-Mexico border. That the signal is higher now after the tariff threat, which reflects research into possible ramifications on the Mexican economy, is a sign that observers consider this threat more credible than the border closure one.

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Interest in the Bank of Mexico also hit a year high. The day before the White House announced the tariff threat, the central bank cut its growth forecast for 2019 to below 1 percent. Recently elected President Andres Manuel Lopez Obrador had pledged 4 percent annual growth. Heightened online attention to the bank and to the economy in the wake of the US tariff threat portends the possibility of growing pressure on the Mexican president.

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