President Trump’s Mexican Standoff

His approach to Peña Nieto suggests this is one adversary he fails to understand.

.. His strategy has been to soften up the opponent with verbal abuse and extreme threats, including the possibility of tearing up Nafta altogether.
.. “The president-elect has done a wonderful job of preconditioning other countries [with] whom we will be negotiating that change is coming,” Commerce Secretary-designate Wilbur Ross gloated during his Senate confirmation hearing. “The peso didn’t go down 35% by accident. Even the Canadian dollar has gotten somewhat weaker—also not an accident. He has done some of the work that we need to do in order to get better trade deals.”
.. Maybe Mr. Trump should have Googled the Treaty of Guadalupe Hidalgo. Mexicans are still smarting over that one.
.. The White House responded by saying it would extract the money for the wall with a 20% tariff on Mexican exports to the U.S. Of course American consumers would be the ones paying. But in any case it would be the end of Nafta.Americans have to hope their new president is not that reckless.

.. “sales of food and farm products to Mexico totaled a record $19.5 billion in fiscal year 2014.” That was 13% of U.S. agricultural exports.

.. Mr. Trump says that the U.S. has been outfoxed in manufacturing because American companies now make things in Mexico. But imports from Mexico contain significant American content, and production-sharing across the continent has given U.S. companies an edge in the global market.

.. But it is being debated whether that would repeal the congressional legislation that put it into effect. If so, tariffs would revert to pre-Nafta levels, which implies using the World Trade Organization tariff schedule. American exporters to Mexico would face greater tariff hikes than Mexican exporters to the U.S., because Mexico accepted much greater tariff reductions under Nafta than the U.S. did.

.. Mr. Trump might try to invoke the International Economic Emergency Powers Act of 1977 to slap his oft-promised punitive tariff on Mexican imports. But it is hard to argue that national security is being threatened.

.. The 45th president has said he wants to craft new bilateral trade agreements. Mexico says it is not interested. It has learned a hard lesson about relying on an unreliable partner, and its aim now is to diversify its trade portfolio. Policy makers are said to be exploring new agreements in the region with countries eager to replace U.S. agricultural suppliers.

Trade Is More Powerful Than Donald Trump

Freaking out about the end of TPP and NAFTA? Here’s why you shouldn’t.

.. But it’s worth remembering that even if he does go down the path of disrupting global trade pacts, even if the move toward globalization halts, we still cannot return to some imagined past. A return of some manufacturing to the United States is possible and has already been happening, care of technology that makes the cost of making stuff in our expensive country less of an issue. Factories today, however, are output machines, not job machines. A new factory employs hundreds of skilled workers, adept at robot programming or high-end value-add work; it does not employ thousands of shift workers. The myth of manufacturing today is that jobs will come back, but most of the jobs that disappeared over the past decades can never exist again. Period. American withdrawal from the TPP, or changing the terms of NAFTA will not alter that.

.. For instance, U.S. companies have been selling into China for the past 20 years even as the difficulty of doing so has been significant and the costs have been considerable. China is simply too attractive a market for companies to ignore, even with a government that hardly welcomes foreign competition. The United States is an even larger market, which means that a U.S. that is less welcoming to foreign business is still too desirable a market for foreign companies to forgo simply because Washington raises hurdles.

.. Separate from whether these initial trade moves are wise or foolish, they are not nearly as consequential as the Trump administration would have us believe or as various critics would contend. They are mostly words codifying current trends, rather than actions that set America in a new direction.

How Trump’s wall could beckon a global trade war

But Mexico — or other trading partners — could try to punish Trump and other supporters of the tax by targeting goods in politically sensitive areas, said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics.

“The Mexican minds will be thinking about what they could do that would give President Trump the most pain in his political base,” he said, adding that that might mean “stopping imports of certain products made in Indiana or Michigan or wherever.”

And they could go after areas not directly associated with legal trade.

“They can do all sorts of things we don’t like,” Hufbauer said. “They can legalize marijuana. They can legalize cocaine. They can stop cooperating with the U.S. with respect to refugees from Guatemala, Honduras and so forth.”

The plan, which would target imports while allowing tax-free exports, would boost the value of the dollar, giving customers more purchasing power to manage the higher costs, supporters say.

.. And proponents maintain the costs would even out eventually, even with what Ikenson called a likely “adjustment period” at the start.

.. “But 97 percent of American importers are small businesses, [companies] with under 500 employees. … Small businesses are in the center of the bulls eye in this law.”