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Trump threatens new tariffs on Mexico — President Trump on Thursday night said he would slap 5% tariffs on all imports from Mexico beginning June 10 in retaliation for what he described as Mexico’s failure to do more to stop the flow of migrants to the U.S. border. Unless Mexico takes unspecified actions, the tariffs would rise to 10% on July 1, 20% on Sept. 1 and 25% on Oct. 1.
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The tariffs would remain at 25% “unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory.” Trump cited the 1977 International Emergency Economic Powers Act as the legal basis for his action. MM asked WH chief of staff Mick Mulvaney how that act would apply to immigration and he referred the question to the White House counsel’s office and noted several GOP senators had the same question.
Mexico is the U.S.’s third largest trading partner and recently concluded the USMCA trade deal that faces an uncertain future in Congress. The tariffs will likely raise prices for auto parts, produce including avocados, building materials and much more.
Asked about imposing a tax on Americans to punish Mexico, Mulvaney said: “Americans are paying for this right now. Illegal immigration comes at a cost.” (More below).
Wall Street react — Investors are not likely react well to what is now effectively a two-front trade war with two of our biggest trading partners. Dow Futures dropped over 200 points shortly after the announcement and a promise by Mexico to retaliate.
GOOD FRIDAY MORNING — Welcome to the final day of May! Email me on firstname.lastname@example.org and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on email@example.com and follow her on Twitter @AubreeEWeaver.
Markets will react (perhaps badly) to the latest Tariff Man appearance … Personal Income and Spending at 8:30 a.m. expected to rise 0.3% and 0.2%, respectively … Univ. of Mich. Consumer Sentiment at 10:00 a.m. expected to come in at 101.3 …
QUICK CLICK — Check out this DataPoint graphic on the impact of the GOP tax cut bill, available for Pros here.
MORE ON MEXICO —
MARKETS SHAKEN — Reuters: “U.S. stock futures slid and sovereign bonds surged on Friday as investors feared … Trump’s shock move to slap tariffs on Mexico risked tipping the United States, and maybe the whole world, into recession.” Read more.
Our Ian Kullgren: “The president is also considering sweeping restrictions on asylum that would effectively block Central American migrants from entering the U.S., several administration officials and advocates briefed on the plan said earlier Thursday.
“Trump’s idea to use tariffs as leverage on immigration is not new. He said last month that a recent deal with Mexico on auto exports wouldn’t count if the country failed to stop Central American migrants from illegally crossing the border.”
More Mulvaney: “We really do not want to do this but we do this to protect the country.” On the USMCA: “The two are absolutely not linked. … This is an act that we take that is related to an immigration matter. These are tariffs as part of an immigration problem.” The Mexicans may not share this view. The WTO might not either.
He said Mexico would have to “make progress immediately” on border crossings in order to forestall the tariffs. He said Republicans on the Hill were generally supportive of the action but the White House didn’t talk to any Democrats.
Per statement from Sen. Chuck Grassley (R-Iowa): “Trade policy and border security are separate issues. This is a misuse of presidential tariff authority and counter to congressional intent. Following through on this threat would seriously jeopardize passage of USMCA, a central campaign pledge of President Trump’s and what could be a big victory for the country.”
Deutsche Bank’s Torsten Slok in a note headlined “This is a serious risk to the outlook”: “US trade with Mexico is mainly intra-company trade. … [A] significant amount of US exports consists of imports from other countries, in particular for the auto industry. In other words, trade with Mexico is basically all about the supply chain, which essentially is all about cars.”
SPEAKING OF NAFTA — Our Megan Cassella and Andrew Restuccia: “The Trump administration has taken a step toward ratification of the new North American trade agreement, sending a draft statement to Congress that puts the legislative body on notice the pact could be coming soon.
“The move represents a procedural step forward on the path to approve the U.S.-Mexico-Canada Agreement and starts a 30-day window that must pass before the Trump administration is allowed to submit the full implementing legislation to Congress.” Read more.
China and the rare earth card — China is threatening to limit exports to the U.S. of rare earth minerals used in a broad range of technology, consumer and defense products. Opinions are mixed on just how big an impact this would have. China would hurt itself by not exporting products using rare earth minerals. The U.S. also has plenty of rare earth deposits but very limited mining capacity.
It would take a long time and plenty of government support to reduce U.S. reliance on imported rare earth minerals. MM spoke with James Litinsky, CEO of JHL Capital, the investment firm that owns MP Materials, whose Mountain Pass facility is the only rare earth mining site in North America.
On whether China will follow through on its threats: “Neither you, nor me, nor anybody else knows if Trump and Xi will hug tomorrow and all this will be over …
On the minerals themselves: “Rare earths are not rare at all. They are ubiquitous. Rare earths in high enough concentration to be processed economically are extremely rare. … Mountain Pass is blessed with the Saudi Arabia of rare earths … The reality is there is a lot of hype but realistically it is hard to be a low-cost producer of rare earths. It is mainly China and Mountain Pass.”
WHAT WILL IT TAKE FOR THE FED TO CONSIDER RATE CUTS? — NYT’s Jeanna Smialek: “Growing economic risks from … Trump’s trade war with China could prod Federal Reserve officials away from their patient stance and toward cutting interest rates.” Read more.
ECONOMY REMAINED ROBUST IN Q1 — WSJ’s Harriet Torry: “U.S. economic growth remained robust in the first quarter, although fresh government data showed less business investment, a decline in corporate profits and muted consumer spending.” Read more.
But that means the economy could have already peaked — AP’s Martin Crutsinger: “Enjoy it while it lasts. The U.S. economy grew at a solid 3.1 percent annual rate in the January-March quarter — a pace that will likely prove to be the high-water mark for the year before growth weakens in the coming months.” Read more.
WH NEARS PLAN TO PRIVATIZE FANNIE, FREDDIE — WSJ’s Andrew Ackerman: “Trump administration officials are putting the finishing touches on a plan to return mortgage-finance giants Fannie Mae and Freddie Mac to private-shareholder ownership” Read more.
SEC CHIEF ACCOUNTANT TO LEAVE IN JUNE — WSJ’s Tatyana Shumsky: “The Securities and Exchange Commission said chief accountant Wesley Bricker will leave the regulator in June and Sagar Teotia will take over as acting chief accountant.” Read more.
UBER LOST $1B IN FIRST QUARTER — CNN’s Seth Flegerman: “Uber said Thursday it lost more than $1 billion in the first three months of 2019, in the latest sign that the company has a long and uncertain road ahead to profitability. The ride-hailing company lost $1.01 billion in the first quarter, compared to a rare profit of $3.75 billion in the same period a year ago, which was fueled by its decision to cede two of its operations abroad to rivals.” Read more.
QUARLES SAYS FED POLICY SHOULD NOT FOCUS ON STABILITY — Our Victoria Guida: “Federal Reserve regulatory chief Randal Quarles … said monetary policy decisions should be made primarily based on what will lead to price stability and maximum employment, rather than on reining in financial stability risks.
“In a speech at a Fed research conference in Washington, Quarles acknowledged that it’s complicated to consider whether interest rate policy should be used to promote financial stability.” Read more.
WYDEN THREATENS TO HOLD TREASURY NOMINEES — Our Bernie Becker: “Sen. Ron Wyden (D-Ore.) threatened on Thursday to put a hold on Treasury Department nominees unless the administration offers fuller answers about congressional efforts to obtain President Donald Trump’s tax returns.” Read more.
HEARING AHEAD ON CLIMATE CHANGE AND RISK — Per release: “The Commodity Futures Trading Commission’s Market Risk Advisory Committee will hold a public meeting on June 12 at CFTC’s Washington, DC headquarters. CFTC Commissioner Rostin Behnam is the sponsor of MRAC. At this meeting, the MRAC will focus on climate-related financial risks.” Read more.
TRANSITIONS — Per Talking Biz News: “Alex Frangos, Europe finance editor at The Wall Street Journal, sent out the following announcement: … ‘I am pleased to announce that Chitra Somayaji will soon join as our Europe markets editor based in London, leading our markets reporting team here and overseeing our coverage in the region” Read more.
Have a great weekend!