Mexican Tariffs Inject Uncertainty into Industrial Market

Posted July 3, 2019

By Joshua A. Harris

The industrial space market, along with the broad macroeconomy in the U.S., received a new jolt of uncertainty with President Donald Trump’s recent announcement of tariffs of up to 25% on goods imported from Mexico. These tariffs, if actually implemented, would represent a new front in global trade wars which have been recently escalating with China and others. Mexico is a very significant trade partner with imports totaling $371.9 billion and exports $299.1 billion in 2018 alone; this makes Mexico our third-largest trading partner and second-largest market for exported U.S. goods. Further, much of the U.S.-Mexican trade includes partially finished goods and component parts that are part of critical supply chains such as those in U.S. automotive production.

As such, the impact of a sustained bilateral trade war between the U.S. and Mexico could be uniquely devastating to both economies and especially to the U.S. industrial space markets. First, inland port markets, such as those in California and Texas, could be directly impacted by lowered volume of goods moving by truck and rail. Second, manufacturing and distribution markets in areas of high levels of U.S. manufacturing activity, such as Ohio and Tennessee, could be impacted by reduced orders as U.S. producers react to price increases of raw materials and components as well as lagging demand for exports. Finally, the vast network of distribution centers supporting retail and e-commerce could be affected by lower demand for goods given an economic slowdown and increased prices on all goods. In sum, such a trade war could easily tip the U.S. into recession.

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