Mexico Ado About Nothing: The Truth About Mexican Tariffs

By June 7, 2019featured
Mexico Tariffs

Holy guacamole! From avocados to cars and plenty in between, many popular imports could skyrocket in price in a matter of days if President Donald Trump’s proposed Mexican tariffs go into effect.

In terms of the stock market, traders are in a tizzy over the potentially devastating effects on stock prices in the face of these tariff hikes. Stock prices could plummet for companies in a variety of sectors, from food to automobiles to appliances and electronics and beyond.

But why is this happening … and what does it mean for traders? Here, I’ll weigh in with my thoughts on the Mexican tariff situation.  

Mexican Tariffs: What’s the Deal?

In case you’ve been living under a rock, here’s the deal with the looming Mexican tariffs.

Several days ago, President Trump announced a plan to impose tariffs on Mexican imports starting June 10. It’s a political move, intended to squeeze Mexico into stopping the flow of migrants crossing the border into the U.S.

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The idea? Until Mexico can put a plug on illegal immigration, they’ll be subject to hefty tariffs — starting at 5%, with duties topping up to 25% in the coming months.

While it can be tempting to compare this situation to the trade war with China, it’s actually quite different. Why? In this case, it’s a political play rather than a pure economic play.

What Does the U.S. Import From Mexico?

As it turns out, the U.S. imports a LOT from Mexico. In 2018, the U.S. imported upwards of $346 billion worth of products, including but not limited to:

  • Cars. Last year alone, the U.S. imported over $90 billion in automobiles.
  • Electrical machinery. In 2018, about $64 billion in electrical machinery was imported into the U.S.
  • Agricultural products. About $26 billion in fruits, vegetables, and other agricultural products bounced over the border into the U.S. in 2018.  

This is all to say: If these tariffs go through, there could be some significant price hikes for a variety of different products, ranging from cars to computers to produce. And you thought it was already expensive to add avocado to your meal!

What Will Happen?

It’s impossible to know exactly what will happen in the coming days. But if you ask me … all the frenzy about these Mexican tariffs is mostly unwarranted. Personally, I think Mexico will make the appropriate concessions — whether that’s right or wrong.

Why? Because Mexico really needs us. They depend on the U.S. as one of their biggest markets. And ultimately, it’s a better political move to work with us rather than against us.

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What Does it Mean for Traders?

Like I said, I don’t believe that these tariffs will be long term, if they go through at all. But during this time of uncertainty, there could be opportunities for traders, including…

Going Short

Taking a short position is one way to play dwindling stock prices, and it’s generally a short-term strategy.

Depending on how the tariff situation shapes up, there could be opportunities to take short positions with companies in the sectors that represent some of Mexico’s biggest exports to the U.S., including autos, tech, and food manufacturers.

Many of these companies will be mid- or large-cap companies. Unfortunately, the pickings will be fairly slim for shorting small-cap stocks, largely due to the many automobile bankruptcies about a decade ago that blew up a lot of smaller companies.

How and Why Stocks Move

Going Long

One opportunity I’ll keep tabs on is Workhorse Group (WKHS), a company that makes electric trucks.

Trump even tweeted about them, because they may move into a closed GM plant in Youngstown, Ohio. This could be a contender for longer positions. It’s got a few good checks in its favor: it’s getting attention, it’s a sexy green energy play, and it could become a political thing.

Note: At the time of this writing, WKHS was up 11% for the day!

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To Sum It Up

Will the looming Mexican tariffs cause massive shifts in the market?

No one can say for sure. I think we might see some splashes … but probably not a huge cannonball.

If Mexico decides to play hardball, consider going short the automakers and appliance makers. And as always, stay on top of the news and your watchlist to make the most intelligent trading decisions.

What stocks are you watching in the face of potential Mexican tariffs? Leave a comment and tell me your thoughts!

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