United States President Donald Trump vowed to impose a 5% tariff on Mexican goods until that country stops immigrants from entering the US illegally - brandishing a weapon used against a widening group of countries and jeopardizing a new North American trade agreement.

The tariff would take effect on June 10, "until such time as illegal migrants coming through Mexico, and into our country, STOP", Trump said in a Twitter post on Thursday night.

He warned that the levy "would gradually increase until the illegal immigration problem is remedied at which time the tariff will be removed". The tariffs could rise as high as 25% in October, Trump said in a statement released by the White House.

The move, which has major implications for American automakers and other companies with production south of the border and the US economy as a whole, represents Trump's latest expansion of his trade wars.

It comes just days after he removed steel tariffs on Mexico that had caused retaliation against US farm products.

It also marries two of his signature issues - trade and immigration - as he ramps up his campaign for re-election in 2020.

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For the US economy, 5% tariffs on $346bn of Mexican imports means a price tag of about $17 billion, which rises to $87bn if the taxes increase to 25%.

American consumers will feel the impact more than they did with the China tariffs, as price increases for items like food are more directly observable, Orlik said.

To impose the potential tariffs, Trump said he's invoking authorities under the International Emergency Economic Powers Act, a tool that's used to impose Treasury sanctions. Analysts and lawyers raised questions about the legality of using it in this context.

"This is a misuse of presidential tariff authority and counter to congressional intent," Republican Senator Chuck Grassley of Iowa said in a statement Thursday.

"I support nearly every one of President Trump's immigration policies, but this is not one of them".

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Acting Homeland Security Secretary Kevin McAleenan laid out what he called "key opportunities for enhanced partnership with Mexico" that could spare the country from increased duties.

McAleenan listed the need for Mexico to step up its security efforts at its border with Guatemala, a crackdown on transnational criminal organisations and more cooperation and alignment on asylum policy.

If the US imposes the tariffs, it will be violating Nafta as well as World Trade Organization commitments, said Kenneth Smith Ramos, who was Mexico's chief negotiator for the USMCA when it was negotiated with the US and Canada last year.

"Under Nafta you cannot increase tariffs unless there are trade remedy investigations or something that is allowed under the agreement," he said. "So it would be a clear market access violation".

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"The read across from Mexico to China will add to concerns that talks between Washington DC and Beijing are going nowhere. Mexico negotiated revisions to Nafta, only to be hit with sweeping higher tariffs. Other countries, including China, will be taking note, perhaps concluding that negotiated agreements with the U.S. are of little worth".

Rufus Yerxa, president of the National Foreign Trade Council, a business group representing US companies, said the move was a huge blow to the American economy and casts serious doubt on passage of the new trade deal.

"There goes USMCA!" he said. "What trading partner is ever going to trust this administration to honor deals?"

With the move to impose tariffs Trump is reaching for one of his favorite policy tools to pursue a broader policy goal.

But he also faces risks of a backlash with polls showing the import taxes he has imposed on goods from China and elsewhere are not popular.

"This is a dramatic escalation that will likely make it impossible for Mexico to continue cooperating with this administration on trade or on controlling asylum flows from Central America," said Edward Alden, a senior fellow at the Council on Foreign Relations.

"Mexico has negotiated in good faith throughout on the USMCA, and has tried to work with the administration on migration. Unless this tariff is quickly reversed, it will kill cooperation on both".