Mexico’s peso shrank 2.5% against the U.S. dollar on Friday as U.S. President Donald Trump announced punitive tariffs on all imports from the Central America neighbor.
Trump intends to enforce 5% tariffs, citing the escalating immigration dispute that has seen over 4,500 migrants cross into the U.S. every day.
Trump said the tariffs that are expected to take effect on June 10 would remain in place for as long as Mexico allowed migrants to keep sneaking across its borders into the United States.
The peso dropped to over 3.5% on Friday during the early trading hours, its highest loss since October 29.
After the announcement, the peso was exchanged at 19.8275 against the dollar. The tariff threat has pushed the greenback against the peso even higher compared to other currencies.
Data from the U.S. Office of Trade Representative categorized Mexico as the second-ranked importer of goods to the U.S. in 2018. Mexico supplied agricultural products worth $26 billion in 2018 making it U.S. biggest foreign supplier.
In response to Trump’s decision, Mexico’s president Andrês Manuel Lopez Obrador said that imposing tariffs could not solve any of the social problems that affect the U.S and neither would any forceful means.
Trump wants Mexico to address the issue of illegal migrants, having noted the issue all through his campaign and after becoming president. In his latest move, the U.S. leader said if illegal immigration through Mexico wasn’t addressed, then the tariffs would rise monthly, from 5% in June to 25% by October.
On Friday, the iShares MSCI Mexico ETF (EWW) was down 3%, on track for its worst day for over six months. The EWW is a benchmark used to track Mexican stocks.
The U.S. now has a potential tariff war with both China and Mexico, with the latter vowing to retaliate.
The Sino-U.S. standoff has already seen global trade shake, with stock markets mixed all through May. The latest saw the Dow Jones Industrial Average drop by more than 250 points on Friday.