US President Donald Trump says the United States will impose a five per cent tariff on all goods coming from Mexico. AFP Photo
WASHINGTON US President Donald Trump, incensed by a surge of immigrants across the southern border, has vowed to impose a tariff on all goods coming from Mexico starting at five per cent and ratcheting higher until the flow ceases.
Trump's move was an escalation of his battle to control a tide of arrivals that has increased despite his efforts to build a border wall and take other steps.
Trump said the tariffs would start at five per cent on June 10 and increase monthly until reaching 25 per cent on October 1 unless Mexico took steps to halt those crossing from Central America to the US.
"If the illegal migration crisis is alleviated through effective actions taken by Mexico, to be determined in our sole discretion and judgment, the tariffs will be removed," Trump said in a statement.
The announcement rattled investors who feared worsening trade frictions could hurt the global economy. The Mexican peso, US stock index futures and Asian stock markets tumbled on the news, including the shares of Japanese automakers who ship cars from Mexico to the US.
US officials said 80,000 people are being held in custody with an average of 4,500 arriving daily, overwhelming border patrol officials.
The president's move was a direct challenge to the Mexican government of President Andres Manuel Lopez Obrador and raised the risk of deteriorating economic relations between the two neighbours.
The size of US trade with Mexico was $US671 billion ($A970 billion) in 2018.
Trump's directive also spelled the potential for chaos for his efforts to get the US Congress to approve his USMCA trade deal, a replacement to the North American Free Trade Agreement between the US, Mexico and Canada.
"We're in a good moment building a good relationship and this comes like a cold shower," Mexican deputy foreign minister for North America Jesus Seade said.
Calling Trump's move "extreme" and disastrous, Seade said a normal response would be for Mexico to mirror US tariffs but that would spark a trade war.
Trump - who said he was acting under the powers granted to him by the International Emergency Economic Powers Act - campaigned for election in 2016 on a vow to crack down on illegal immigration and has been frustrated that the flow has increased in recent months.
White House acting chief of staff Mick Mulvaney, asked which products from Mexico could be affected by the tariffs, said: "All of them."
"This is an urgent problem," Mulvaney said.
"We are interested in seeing the Mexican government act tonight, tomorrow."
During a visit to Canada on Thursday, US Vice President Mike Pence vowed the USMCA deal would be passed this year. AFP