Stocks were sharply lower Friday as investors feared President Donald Trump’s surprise decision late Thursday to impose tariffs on all Mexican imports, combined with the trade war with China, risks slowing economic growth.
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The S&P 500 index looks likely to end the month down 6 percent and the Dow Jones Industrial Average may close Friday with its longest streak of weekly losses since 2011.
The U.S. will impose a 5 percent tariff on incoming Mexican products until the country limits illegal immigration on the U.S. southern border, Trump announced in a tweet Thursday night. The tariff will go into effect on June 10 and may rise to 25 percent by October.
“Automakers may indeed see large financial impact and uncertainty from the tariffs, as all major original equipment manufacturers import a considerable portion of the vehicles they sell in the U.S. from Mexico,” Deutsche Bank research analyst Emmanuel Rosner said in a research note. “They also use large content imported from Mexico in the vehicles they produce in the U.S.”
“We believe the tariffs on vehicles would undoubtedly be passed on to consumers, which would raise the price of vehicles sold in the U.S. by an average of about $1,300,” he added.
Meanwhile, China is planning further retaliation against U.S. import tariffs by restricting exports of rare earth minerals used in electronics and may target specific American companies according to media reports. The trade war is already affecting Chinese economic growth with the official manufacturing purchasing managers index falling into a contraction below the 50 index level. China’s official NBS manufacturing PMI fell to 49.4 in May, from 50.1 in April