Surprise Mexican tariffs hurt China trade talks: 'How can you trust Trump to honor a deal?'

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Combination of file photos showing U.S. President Donald Trump and Chinese President Xi Jinping.

Mandel Ngan, Nicolas Asfouri | AFP | Getty Images

President Donald Trump’s surprise vow to slap new tariffs on Mexican goods has an unintended consequence: It further undermines the chance of a trade resolution with China.

The U.S. is set to impose a 5% tariff on all Mexican imports from June 10, Trump first announced in a Twitter post Thursday night. The move came as a shock as the White House just took a formal step to kickstart approval of the United States Mexico Canada Agreement.

Trump’s 180-turn on the U.S.’ largest trading partner is sending a ominous message to the international community that he can’t be trusted, Wall Street policy analysts said, adding that China, already skeptical of Trump’s reliability, is now less likely to sign a trade deal with him.

“We view this action as further deteriorating the U.S.-China trade fight. Chinese officials have stated their concern about the reliability of President Trump as a trading partner. These tariffs were announced the same day as significant advancement of the USMCA. If China does not believe a deal will stick, why negotiate?” said Ed Mills, public policy analyst at Raymond James, in a note.

Chinese leader Xi Jinping and Trump are set to meet at the G20 summit in Japan next month, but the Mexican tariffs put into further doubt that a “substantive” meeting is possible, Mills added.

“Trump’s readiness to hit a trading partner with new tariff threats soon after striking a trade deal will make China still more cautious about signing up to a deal that Trump then reneges upon, humiliating its leadership,” Krishna Guha. policy strategy analyst at Evercore, said in a note. “Beijing will remain open to talking, but this cannot help prospects for an early breakthrough at G20.”

U.S. stock futures plunged on the new tariff threat and Chinese stocks were hit overnight as well.

“How can you trust Trump to honor a deal?” Chris Krueger, Washington strategist at Cowen said. “Mexico submitted USMCA this week for ratification…Trump’s signature trade achievement was moving downfield…and he just threatened Mexico — the U.S.’s largest trading partner — with unilateral tariffs on ALL Mexican goods exports to the U.S.”

The U.S. and China have been jockeying for tit-for-tat threats after the trade negotiations fell through earlier this month. China reportedly stopped purchases of U.S. soybeans and threatened to cut off rare earth supply to the U.S., while the U.S. blacklisted Chinese telecom giant Huawei, halting its ability to purchase American chips.

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