Mexico has slammed US President Donald Trump’s threat to impose retaliatory tariffs until illegal immigrants stop streaming across its border as “disastrous,” and plunging peso markets seem to agree with that assessment.

Mexico will respond “vigorously” to the promised punitive tariff, Deputy Foreign Minister Jesus Seade said, adding that the country will not stand by idly with its “arms folded” to see if Trump’s threat - issued in a tweet on Thursday afternoon - is serious, though he did acknowledge that only some of Trump’s government-by-Twitter is ever reflected in policy.

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The news sent the peso trading down 2 percent, while futures on the S&P500 index declined 0.8 percent, suggesting the markets took Trump’ threats seriously. The US imported nearly $350 billion in goods from Mexico in 2018, and the two countries were on the verge of ratifying the USCMA trade deal - a replacement for NAFTA, which Trump has harshly criticized for pushing American companies south of the border.

-Stocks and Treasury yields fall after Trump's Mexico tariff threat-U.S. president's tweet sends Mexican peso down about 2%-S&P 500 futures slump 0.9%-Yen advances-Crude oil slideshttps://t.co/W8u0RVoSSbpic.twitter.com/UzYADRS46i — Bloomberg (@business) May 31, 2019

Just hours before Trump dropped his tariff bombshell, Mexican President Andre Manuel Lopez Obrador had said “there is collective spirit in favor of approving the accord,” promising it would happen “soon,” and Canada presented the deal to parliament on Wednesday for ratification. A new tariff could derail the process, snatching defeat from the jaws of victory.

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Trump threatened Mexico with a 5 percent tariff on all Mexican goods to be imposed starting on June 10 “until such time as illegal migrants coming through Mexico and into our Country STOP,” and promised to increase the tariff gradually until the “Illegal Immigration problem” is “remedied.” By October 1, he warned, tariffs will be at 25 percent. While the lion’s share of those illegally crossing into the US are not Mexican citizens, hailing instead from Honduras, El Salvador and Guatemala, the US president blames Mexico for not doing more to halt their movement northward.

In a statement on the tariff, Trump slammed Mexico’s “passive cooperation in allowing this mass incursion,” calling it “an emergency and extraordinary threat to the national security and economy of the United States” and claiming the country’s “strong immigration laws” should make it a bulwark against illegal immigration into the US.

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Trump has wielded tariffs as an economic weapon to bludgeon competitors on the world economic stage before, with China being the most recent example. Illegal immigration has actually been declining since the mid-2000s, and to hold up a video - as Trump did on Thursday - of over 1,000 migrants being detained in El Paso as proof that there is, in fact, a border “emergency” justifying a retaliatory tariff is somewhat disingenuous.

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