U.S. to impose 5% tariff on goods from Mexico: Trump

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Washington will impose a five-percent tariff on all goods from Mexico starting June 10, a measure that will last until "illegal migrants" stop coming through the country into the U.S., President Donald Trump said on Thursday.

"The Tariff will gradually increase until the Illegal Immigration problem is remedied, at which time the Tariffs will be removed," Trump said on Twitter.

In a statement issued by the White House, Trump said the tariff would increase to 10 percent on July 1, 15 percent on August 1, 20 percent on September 1 and to 25 percent on October 1.

GLOBAL MARKETS

Meanwhile, Trump's decision on Twitter caught markets completely by surprise and sparked a rush to safe harbors as investors worried the escalation would upend an already fragile world economy.

"The threat of U.S. tariffs on Mexico to take effect inside two weeks is a sharp blow to investor sentiment," said Sean Callow, a senior FX analyst at Westpac.

A man looks at an electronic board showing the Nikkei stock index outside a brokerage in Tokyo, Japan, January 7, 2019. /Reuters Photo

"Mexico is the U.S.'s largest trading partner and a flare-up in trade tensions was definitely not on the market radar," he added. "This is obviously a major setback for CAD, MXN and the thousands of US businesses that use Mexican-made products."

Yields on the 10-year Treasury note quickly fell to a fresh 20-month low of 2.18 percent, while the dollar jumped 2.1 percent on the Mexican peso.

E-Mini futures for the S&P 500 sank 0.9 percent, leading Asian bourses lower. Japan's Nikkei fell 1.2 percent in early trade, to be down 7 percent for the month so far.

MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.1 percent and was likewise off a hefty 7.7 for the month.

Investors clearly feared that opening a new front in the trade wars would threaten global and U.S. growth, and pressure central banks everywhere to consider new stimulus.

Trucks wait in a long queue for border customs control to cross into the U.S. at the World Trade Bridge in Nuevo Laredo, Mexico April 6, 2019. /Reuters Photo

Mexico: Would be disastrous if Trump imposes new tariffs

Mexico's deputy foreign minister for North America, Jesus Seade, said that it would be disastrous if U.S. President Donald Trump goes through with his threat to impose new tariffs on Mexico.

"It's disastrous. If this threat is carried out, it would be extremely serious," he said.

"If this is put in place, we must respond vigorously," he told a press conference on Thursday.

Asylum seekers pass the time in a makeshift tent camp near the Brownsville-Matamoros International Bridge where they wait in hopes of soon being granted entry into the U.S. in Matamoros, Tamaulipas, Mexico, May 17, 2019. /VCG Photo

Trump's announcement came a day after border agents in El Paso, Texas detained the largest single group of migrants ever encountered by Border Patrol Agents – 1,036 people.

The group crossed the Rio Grande River from Ciudad Juarez, Mexico in the early morning hours of Wednesday, illustrating the mounting problem that Trump's administration has been unable to get under control.

The number of migrants apprehended has topped 100,000 a month in recent months.

The Rio Grande, which serves as the U.S.-Mexico border, is pictured from the Mexican side of the Brownsville-Matamoros International Bridge in Matamoros, Tamaulipas, Mexico, May 17, 2019. /VCG Photo

They are mostly people fleeing poverty and violence in Central America to ask for asylum once they arrive on U.S. soil.

"Mexico's passive cooperation in allowing this mass incursion constitutes an emergency and extraordinary threat to the national security and economy of the United States," the White House said in a statement.

"Mexico has very strong immigration laws and could easily halt the illegal flow of migrants, including by returning them to their home countries. Additionally, Mexico could quickly and easily stop illegal aliens from coming through its southern border with Guatemala."

(With input from agencies)