Source: https://www.cnbc.com/

May 31, 2019

The U.S. will impose a 5% tariff on all Mexican imports from June 10, President Donald Trump said in a Thursday evening Twitter post.

Duties of up to 25% will be added in the coming months if Mexico does not take action to "reduce or eliminate the number of illegal aliens" crossing into the U.S., the White House said in a statement.

The U.S. will impose a 5% tariff on all Mexican imports from June 10 - and duties of up to 25% will be added in the coming months if Mexico does not take action to "reduce or eliminate the number of illegal aliens" crossing into the U.S., the White House said Thursday.

That comes despite U.S. Trade Representative Robert Lighthizer on Thursday sending a letter to congressional leaders to kick start the process of approving updates to the North American Free Trade Agreement.

U.S. President Donald Trump first announced the Mexico tariffs on Twitter.

Mexico was the second-largest importer of goods into the United States in 2018, according to the Office of the U.S. Trade Representative.

The United States imported $346.5 billion of goods from Mexico in 2018, an increase of 10.3% over the year prior, according to the USTR. The 2018 total accounted for 13.6% of overall U.S. imports that year.

Linked to 'illegal migration crisis'

"If the illegal migration crisis is alleviated through effective actions taken by Mexico, to be determined in our sole discretion and judgment, the Tariffs will be removed. If the crisis persists, however, the Tariffs will be raised to 10 percent on July 1, 2019," the White House said.

"Tariffs will be increased to 15 percent on August 1, 2019, to 20 percent on September 1, 2019, and to 25 percent on October 1, 2019," it added. "Tariffs will permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory."

How do tariffs work?

Mexico is the largest foreign supplier of agricultural products to the United States, totaling $26 billion last year, according to the USTR. Top categories among those imports included fresh vegetables, fresh fruit, wine and beer, and processed foods.

Mexico responds

In a letter addressed to Trump, Mexican President Andrés Manuel López Obrador said he did not want confrontation, and that leaders have a responsibility to seek peaceful solutions to controversies.

"President Trump: Social problems cannot be resolved with taxes or coercive measures," the Mexican leader wrote.

He added: "I propose to deepen the dialogue, seek alternatives to the immigration problem and, please, remember that I do not lack courage, that I am not cowardly nor timid but that I act on principles: I believe in the policy that, among other things, was invented to avoid confrontation and war."

López Obrador requested that U.S. and Mexican officials begin meeting on Friday to discuss how to "reach an agreement for the benefit of both nations."

U.S. Senate Finance Committee Chairman Chuck Grassley slammed the move, calling it a "misuse of presidential tariff authority."

"Trade policy and border security are separate issues," Grassley said in a statement following the Trump's announcement. "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," he warned.

Trade agreement updates

According to a copy of a letter obtained by CNBC, Lighthizer on Thursday submitted to congressional leaders a draft of the so-called Statement of Administrative Action, which would allow the Trump administration to send the proposed United States-Mexico-Canada Agreement (USMCA) to Congress within 30 days.

The USMCA is a deal made with Mexico and Canada last year that replaces the 1994 North American Free Trade Agreement, which the president has criticized as a "disaster" that saps American jobs.

Trump has indicated he wants to quickly overhaul trade relations with Canada and Mexico, but any such move would require Congressional approval of the USMCA. The White House has said it wants to ratify the deal this summer.