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A U.S. Secret Service agent stands watch as President Trump to Marine One. Photo: Chip Somodevilla/Getty Images
Already having laid off the highest number of employees in nearly a decade and attempting to recover from a year in which declining global car sales likely reduced world GDP by 0.2%, the auto industry is facing a direct hit from President Trump's threatened tariffs on all goods from Mexico.
Trump said the U.S. would add 5% tariffs on all Mexican imports "until such time as illegal migrants coming through Mexico, and into our Country, STOP," in a tweet late Thursday night.
Why it matters: Mexico recently became the No. 1 trading partner with the U.S., and a significant percentage of that trade is completed by auto companies. Much of the "trade" is American auto companies exchanging parts, goods and services within entities they own, Deutsche Bank Securities chief economist Torsten Slok pointed out in a note to clients Thursday night.
The auto industry was already facing trouble, as ratings agency Fitch's chief economist Brian Coulton and analyst Pawel Borowski wrote in a report released Tuesday.
The big picture: In addition to impacting consumers and company bottom lines, the tariffs are likely to impact jobs.
American companies have fared particularly poorly, exemplified by Ford's May 20 announcement that it would cut 10% of its salaried workforce. Six months earlier, General Motors announced the closure of 5 plants and 14,000 job cuts. Tesla announced over 3,000 job cuts in January.
The market did not take Trump's Mexico tweet well.
By the way: "Imposing these tariffs is in principle, not allowed under the free trade agreement currently in place between Mexico and the United States or under WTO general frameworks," wrote Tania Escobedo, strategist at RBC Capital Markets.
Our thought bubble, via Axios' Felix Salmon: Strategically, it makes zero sense for the U.S. to enter a two-front trade war, engaging Mexico even as the confrontation with China is reaching a boiling point. China and Mexico are 2 of America's 3 largest trading partners. To start trade wars with both of them is a declaration of isolationism not seen since 1945.
In a toned-down and largely peaceable 2-page letter, Mexican President Andrés Manuel López Obrador wrote to President Trump that he disagreed with his decision to add 5% blanket tariffs to all Mexican goods.
Details: "With all due respect, although you have the right to express it, 'America First' is a fallacy because until the end of times, even beyond national borders, justice and universal fraternity will prevail," AMLO wrote.
What to watch: The Mexican president also ordered his foreign minister to travel to Washington on Friday and Jesus Seade, AMLO's trade negotiator, said that if the tariffs are implemented, "we should respond in a forceful way."
Trump's tweet further accelerated expectations of interest rate cuts from the Fed this year.
Early Friday morning, Fed fund futures prices showed the chances of the Fed not cutting U.S. interest rates by its Dec. 11 meeting had fallen below 10%, with the probability of cutting rates at least 2 times rising to 61%, according to CME Group's FedWatch tool.
"The story here is that market participants anticipate the Fed will need to cut rates to maintain the [economic] expansion," University of Oregon economics professor Tim Duy wrote early Friday morning.
Flashback: Two rate cuts, or a reduction of the Fed funds rate by 50 basis points, is exactly what Trump's economic adviser Larry Kudlow told me the White House wanted back in March.
Chinese manufacturing activity fell into contraction in May for the first time since December, data released overnight showed.
The official manufacturing Purchasing Managers’ Index (PMI) reading was 49.4, lower than economists polled by Reuters had forecast, and down from last month's reading of 50.1.
It's the latest major piece of Chinese economic data to sink. Exports fell in April, the country’s retail sales drifted lower, and industrial profits slumped.
What's next? "The Chinese slowdown we’ve seen happening, even before the concerns around trade, has really impacted Europe" where manufacturing PMI growth has been deteriorating for 3 straight months, Emily Roland, Head of Capital Markets Research at John Hancock Investment Management, tells Axios.