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After China, US Hits Mexico With Tariffs: ETFs Under Threat

Sanghamitra Saha

The month of May started with escalating U.S.-China trade war, while it is ending on trade conflict with Mexico. President Donald Trump has announced tariffs on all goods imported from Mexico in order to curb illegal immigration. Trump said that the first round of tariffs would begin on June 10 at 5%.

Notably, "the month of May is on pace to be the highest month in crossings in over 12 years and will significantly surpass the record 109,000 in April," per Kevin McAleenan, the acting Secretary of Homeland Security.

The Trump administration warned further that if Mexico does not bar “illegal migrants” heading to the United States, tariffs would go up to 10% by July, 15% by August, 20% by September and reach a permanent level of 25% by October. A group of Trump supporters has begun building the first privately constructed US-Mexico border wall (read: Full-Blown Trade Spat: 5 Most-Vulnerable Sector ETFs & Stocks).

At the start of the month, the Trump administration lifted tariffs on $200 billion worth of Chinese goods from 10% to 25% from May 10 and then banned Chinese firm Huawei Technologies and 26 of its affiliates from doing business with American companies.

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The new trade battle with Mexico and the prospect of retaliation from China from Jun 1 have sent shockwaves across global markets. Futures on the S&P 500 Index “headed for their worst week since the global market rout in December.” The tweet took a hit on the Mexican peso by about 2%. The latest hostility against Mexico may put the new NAFTA deal in danger (read: United States-Mexico-Canada Deal Puts These ETFs in Focus).

Against this backdrop, we highlight some industries and investing areas that could be impacted by most by the tariffs.

Mexico

Mexico has been considered a Trump-unfriendly investment since the President’s campaign days. Mexican peso nosedived to an all-time low after Trump's victory in the U.S. presidential election in November 2016.

“Mexico is America’s third-largest trade partner, with $346.5 billion in goods imported from Mexico in 2018, according to the U.S. Trade Representative,” as quoted on marketwatch.com. So,iShares MSCI Mexico Capped ETF EWW could be in deep trouble in the coming days.

Auto

Several auto companies have manufacturing hubs in Mexico. Companies like Ford Motors F and General Motors GM outsource their car production to Mexico. The country is also a regional manufacturing hub for major Japanese and South Korean automakers that assemble and export cars from Mexico to the United States. So, with renewed tensions, auto stocks and ETF First Trust NASDAQ Global Auto Index Fund CARZ may feel the blaze.

Already, shares in Mazda and Kia dropped by more than 6%, while Toyota TM, Honda HMC, Nissan and Hyundai fell around 3% or more at the time of writing (read: Is the Auto ETF Headed for a Trump Bump or Slump?).

Food & Meat Producers 

The United States imports bulk of meat from Mexico. So, processors and marketers of chicken, beef, and pork may have to bear the brunt. Companies like Tyson Foods Inc. TSN and Hormel Foods Corporation HRL could be susceptible to such threats. ETFs like First Trust Nasdaq Food & Beverage ETF FTXG and VanEck Vectors Agribusiness ETF MOO have considerable investments on these companies.

Corn

Since Mexico is one of the largest purchases of American corn, this soft commodity and Teucrium Corn ETF CORN may come under pressure (read: Top and Flop ETFs of May).

Consumer

Be it China or Mexico, tariff war means higher costs for U.S. companies, which will likely be passed on to consumers. So, consumer ETFs like iShares U.S. Consumer Services ETF IYC should be monitored closely.

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General Motors Company (GM) : Free Stock Analysis Report
 
Ford Motor Company (F) : Free Stock Analysis Report
 
Toyota Motor Corporation (TM) : Free Stock Analysis Report
 
Honda Motor Co., Ltd. (HMC) : Free Stock Analysis Report
 
iShares MSCI Mexico ETF (EWW): ETF Research Reports
 
VanEck Vectors Agribusiness ETF (MOO): ETF Research Reports
 
iShares U.S. Consumer Services ETF (IYC): ETF Research Reports
 
Teucrium Corn Fund (CORN): ETF Research Reports
 
Hormel Foods Corporation (HRL) : Free Stock Analysis Report
 
Tyson Foods, Inc. (TSN) : Free Stock Analysis Report
 
First Trust NASDAQ Food & Beverage ETF (FTXG): ETF Research Reports
 
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Zacks Investment Research
 
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