Peso Plunges After Mexico Announces Retaliatory Tariffs Against US

The Mexican peso tumbled on Tuesday after Mexico announced that in retaliation to Trump's import tariffs on steel and aluminum, it would impose a 20% tariff on U.S. pork imports.The greenback was trading at 20.25 pesos per dollar, up 0.9% on the day and at its highest levels since February 2017.

Last week Mexico said the retaliatory tariffs would apply to pork legs and shoulders from U.S. suppliers, which account for about 90% of the country’s $1.07 billion annual imports of the cuts.  Mexico’s overall pork imports in 2017 totaled about 840,000 tonnes, of which pork legs and shoulders amounted for nearly 650,000 tonnes.

“It’s a 20 percent (tariff) on legs and shoulders, fresh and frozen ... with bones and without bones,” said Heriberto Hernandez, president of Mexico’s leading pork producers association OPORPA, quoted by Reuters.

The Mexican government has not yet given details of the level of the tariff and did not immediately respond to a request for a comment about the tariff or the meeting. Hernandez said he supported the Mexican government’s decision and does not expect it to cause pork prices in Mexico to rise because “there are many alternatives” to U.S. suppliers.

Industry officials pointed to Canada as a possible substitute pork supplier that has tariff-free access to Mexico thanks to NAFTA, or the European Union, which recently concluded a revised trade pact with Mexico that allows tariff-free pork imports but does include other restrictions like volume quotas.

Mexico’s foreign ministry previously blasted the U.S. tariffs as “unjustified, unilateral measures" and warned that even more tariffs are on the table:

"The government of Mexico responds, responds with equivalent measures for diverse products, such as flat steel, lamps, legs and pork trowels, sausages and food preparations, apples, grapes, cranberries, and various cheeses among others, up to a comparable amount to the level of disruption," stated Mexican Foreign Minister Luis Videgaray.

For now, however, the government of Mexico has more inflation to look forward to. Victor Manuel Ochoa, chief executive of top Mexican pork producer Granjas Carroll, said he would support a temporary import deal for Brazilian pork legs if Mexico goes ahead with the tariffs on U.S. imports. He said prices in Mexico will likely rise as a result of the tariffs on U.S. pork. “We think they’d rise around 15 or 16 percent, and I think that could reduce consumption which worries me,” Ochoa said.

Granjas Carroll is a joint venture of ECOM Agroindustrial Corporation, a major commodity trader, and China’s WH Group. “It would be very difficult for Mexican pork prices to stay the same,” Ochoa added, if imported U.S. pork prices spike as a result of the tariffs.

Meanwhile, it now appears that ongoing NAFTA negotiations will not find a solution during this Congress, and will likely extend beyond the US midterm elections. Trump's decision to launch the steel and aluminum tariffs tanked talks with Mexico and Canada to rework NAFTA, while sellside strategists have said the latest moves by Mexico might prompt Trump to pull out of NAFTA, resulting in the Peso's plunge.