President Trump’s plan to slap new tariffs on Mexican imports, weeks after escalating his trade war with China, leaves the United States fighting a multi-front campaign that threatens more instability for manufacturers, consumers and the global economy.
The president’s bombshell announcement that he would impose 5 percent tariffs on Mexican imports, with the possibility of raising them to 25 percent if Mexico doesn’t stop migrants from crossing into the United States, left some economists fearing there were few limits to Trump’s appetite for trade conflict.
“In our view, if the U.S. is willing to impose tariff and non-tariff barriers on China and Mexico, then the bar for tariffs on other important U.S. trading partners, including Europe, may be lower than we previously thought,” Barclays economists said in a research note. “We think trade tensions could escalate further before they de-escalate,” Barclays added.
Adam Posen, president of the Peterson Institute for International Economics, called Trump’s move against Mexico a turning point for financial markets and the U.S. economy.
In global markets Friday, investors spooked by new tariff threats sought safety in German government bonds and the Euro rather than their customary dollar-denominated havens. This “seems to me an indicator that the concerns about the U.S. are rising,” Posen said.
The president’s latest move rocked business leaders who were already scrambling to reshape supply chains to avoid fallout from the U.S. confrontation with China. The added uncertainty may paralyze executives who can’t be sure their next supply chain location will be any safer than their last.
“A lot of companies feeling pressure to get out of China are looking at Mexico if they want to serve the US market, Vietnam if they’re more focused on Asia,” said William Reinsch, a former Commerce Department trade official. “Trump’s action yesterday scrambles all those plans.”
In one example of a company caught in the crossfire, GoPro of San Mateo, Calif., last month announced it would move manufacturing of some of its cameras from China to Mexico, so that it could stop paying tariffs to import them to the United States — tariffs resulting from the U.S. trade war with China. Weeks later, GoPro now faces new tariffs to import those goods from Mexico. The company declined to comment Friday.
As U.S. companies race to find new tariff-free places to manufacture, so far few have reported returning production to the United States, despite the president’s stated aim of using trade policy to help bring jobs back home. Many are still seeking alternative locations overseas, where labor is cheaper.
Trump said he would impose the new tariffs because the Mexican government wasn’t doing enough to stem the flow of migrants, many of whom travel through Mexico from Central America. Some White House officials who support Trump’s approach believe the threat of tariffs is the only way to get the attention of Mexican leaders.
The Mexican government tried to defuse the tension Friday, saying the two sides would meet in Washington on Wednesday for high-level talks.
If no solution is found, Mexico is certain to impose retaliatory tariffs on U.S. goods, with likely targets including U.S. pork, beef, wheat and dairy products, said Former Mexican diplomat Jorge Guajardo.
Some prominent Republicans, including Senate Finance Chairman Charles E. Grassley, raised concerns that the new tariffs could threaten a trade agreement the Trump administration clinched only months ago with Mexico and Canada, to replace the 1994 North American Free Trade Agreement.
Others said the about-face treatment of Mexico would damage Trump’s ability to negotiate trade deals it is pursuing with other partners, including China and Europe.
“You can’t negotiate a trade agreement with someone and then turn around and whack them,” said Douglas Holtz-Eakin, a Republican economist and former Congressional Budget Office director.
In late March, Trump threatened to shut the entire southern border to curb illegal immigration, but backed down a week later after an outcry. That has left some wondering how seriously they should take the latest tariff threat.
If Trump follows through with new tariffs on Mexico, it would hurt U.S. economic growth and increase the possibility of the Federal Reserve reversing course and cutting interest rates this year, economists said.
“The drag to the US economy could be meaningful, especially if the tariffs reach 25%,” the upper limit that Trump has set, Bank of America Merrill Lynch economists wrote Friday. Even if the tariff remains at 5 percent, the effective cost could be higher because many parts cross the border several times as products are assembled, and the tariff must be paid upon each crossing into the United States.
U.S. automakers will be among the principal casualties. Last year, the United States imported roughly $350 billion in merchandise from Mexico, including about $85 billion in vehicles and parts, according to the International Trade Administration.
A full 25 percent tax “would cripple the industry and cause major uncertainty,” according to Deutsche Bank Securities.
“The auto sector – and the 10 million jobs it supports – relies upon the North American supply chain and cross border commerce to remain globally competitive,” said Dave Schwietert, interim president of the Auto Alliance, an industry group. “This is especially true with auto parts which can cross the U.S. border multiple times before final assembly.”
“Widely applied tariffs on goods from Mexico will raise the price of motor vehicle parts, cars, trucks, and commercial vehicles – and consumer goods in general — for American consumers,” the industry group said. “The potential ripple effects of the proposed Mexican tariffs on the U.S. North American and global trade efforts could be devastating.”
Consumers could pay up to $1,300 more per vehicle if the tariffs are implemented, according to Torsten Slok, chief economist for Deutsche Bank Securities.
Retailers, technology companies and textile manufacturers also will be hurt. U.S. mills now ship yarn and fabric to Mexico, where it is turned into apparel and exported back to American retailers. Last year, the U.S. textile industry exported $4.7 billion in yarn and fabrics to Mexico, its largest single market.
“Adding tariffs to Mexican apparel imports, which largely contain U.S. textile inputs, would significantly disrupt this industry and jeopardize jobs on both sides of the border,” said Kim Glas, president of the National Council of Textile Organizations.
The new dispute with Mexico came as the U.S.-China trade conflict continued to deepen.
China on Friday announced it would establish a blacklist of “unreliable” foreign companies and organizations, effectively forcing companies around the world to choose whether they would side with Beijing or Washington.
The new “unreliable entities list” would punish organizations and individuals that harm the interests of Chinese companies, Chinese state media reported, without detailing which companies will be named in the list or what the punishment will entail.
Chinese reports suggested the Commerce Ministry will target foreign companies and groups that abandoned Chinese telecom giant Huawei after the Trump administration added Huawei to a trade blacklist this month, which prohibited the sale of U.S. technology to the Chinese company.
At a time when Western corporations have cut back executive travel to China after authorities detained two Canadians on national security grounds in December, the new blacklist sent another shock wave through the business community.
“I think foreign and especially U.S. firms now have to worry that China is creating a new ‘legal pretext’ to at least impose exit bans on foreign individuals who make this new list, if not worse,” said Bill Bishop, the editor of the Sinocism newsletter, referring to the Chinese practice of not allowing designated foreigners to leave China.
Aside from the new blacklist, China in recently days also escalated threats to stop selling the U.S. so-called rare earths — 17 elements with exotic names like cerium, yttrium and lanthanum that are found in magnets, alloys and fuel cells and are used to make advanced missiles, smartphones and jet engines.
Analysts said it could take years for the United States to ramp up rare-earths production, after its domestic industry practically disappeared in the 1990s. Roughly 80 percent of U.S. imports of the material come from China, according to the United States Geological Survey.
The People’s Daily, the Communist Party’s official mouthpiece, carried a stark warning for the United States this week in an editorial about rare earths: “Don’t say we didn’t warn you.”
That commentary surprised China experts because the People’s Daily, which often signals official positions with subtly codified language, uses that phrase sparingly: It famously appeared before China launched border attacks against India in 1962 and Vietnam in 1979.
Planet Money: Why Did The Cow Cross The Border?
Lately, we’ve been nerding out about cattle. Specifically, about this one particular set of facts. Every year, the United States exports 500 million tons of beef to Mexico. But every year, the United States imports 500 million tons of beef from Mexico.
We heard this, and thought: How is that possible? Why are we trotting all these cows back and forth across the border? We sent a reporter to the border to find out. The answers to those questions explain a lot about how trade works.
As China Talks Begin, Trump’s Trade Negotiator Tries to Keep President From Wavering
WASHINGTON — In the middle of his crowded dinner in Buenos Aires with President Xi Jinping of China, President Trump leaned across the table, pointed to Robert Lighthizer, the United States trade representative whose skepticism of China runs deep, and declared, “That’s my negotiator!”
He then turned to Peter Navarro, his even more hawkish trade adviser, adding, “And that’s my tough guy!” according to aides with knowledge of the exchange.
Now, with talks between China and the United States set to begin this week in Beijing, Mr. Lighthizer, aided by Mr. Navarro, faces the assignment of a lifetime: redefining the trade relationship between the world’s two largest economies by Mr. Trump’s March 2 deadline to reach an agreement.
And he must do it in a way that tilts the balance of power toward the United States. His approach will have significant ramifications for American companies, workers and consumers whose fortunes, whether Mr. Trump likes it or not, are increasingly tied to China.
First, however, Mr. Lighthizer will need to keep a mercurial president from wavering in the face of queasy financial markets, which have suffered their steepest annual decline since 2008. Despite his declaration that trade wars are “easy to win” and his recent boast that he is a “Tariff Man,” Mr. Trump is increasingly eager to reach a deal that will help calm the markets, which he views as a political electrocardiogram of his presidency.
Mr. Trump has repeatedly told his advisers that Mr. Xi is someone with whom he can cut a big deal, according to people who have spoken with the president. On Saturday, Mr. Trump called Mr. Xi to discuss the status of talks, tweeting afterward that good progress was being made. “Deal is moving along very well,” Mr. Trump said.
The administration has tried to force China to change its ways with stiff tariffs on $250 billion worth of Chinese products, restrictions on Chinese investment in the United States and threats of additional levies on another $267 billion worth of goods. China has responded with its own tit-for-tat tariffs on American goods. But over a steak dinner during the Group of 20 summit meeting in Argentina, Mr. Xi and Mr. Trump agreed to a 90-day truce and to work toward an agreement that Mr. Trump said could lead to “one of the largest deals ever made.”
Mr. Lighthizer — whose top deputy will meet with Chinese officials this week ahead of more high-level talks in February — has played down any differences with Mr. Trump and views his role as ultimately executing the directive of his boss. But the trade representative, who declined to be interviewed, has told friends and associates that he is intent on preventing the president from being talked into accepting “empty promises” like temporary increases in soybean or beef purchases.
Mr. Lighthizer, 71, is pushing for substantive changes, such as forcing China to end its practice of requiring American companies to hand over valuable technology as a condition of doing business there. But after 40 years of dealing with China and watching it dangle promises that do not materialize, Mr. Lighthizer remains deeply skeptical of Beijing and has warned Mr. Trump that the United States may need to exert more pressure through additional tariffs in order to win true concessions.
When Mr. Lighthizer senses that anyone — even Mr. Trump — might be going a little soft on China, he opens a paper-clipped manila folder he totes around and brandishes a single-page, easy-reading chart that lists decades of failed trade negotiations with Beijing, according to administration officials.
“Bob’s attitude toward China is very simple. He wants them to surrender,” said William A. Reinsch, a former federal trade official who met him three decades ago when Mr. Lighthizer was a young aide for former Senator Bob Dole of Kansas. “His negotiating strategy is simple too. He basically gives them a list of things he wants them to do and says, ‘Fix it now.’”
Mr. Trump’s selection of Mr. Lighthizer last month to lead the talks initially spooked markets, which viewed the China skeptic’s appointment as an ominous sign. It also annoyed Chinese officials, who had been talking with the Treasury secretary, Steven Mnuchin, a more moderate voice on trade and the primary point of contact for Liu He, China’s top trade negotiator. Mr. Mnuchin has urged the president to avoid a protracted trade war, even if that entails reaching an interim agreement that leaves some issues unresolved.
Mr. Mnuchin, who attended the G-20 dinner, helped Mr. Trump craft an upbeat assessment declaring the Buenos Aires meeting “highly successful” in the presidential limousine back to the airport, according to a senior administration official.
The disparate views among Mr. Trump’s top trade advisers have prompted sparring — both publicly and behind the scenes.
During an Oval Office meeting with the trade team the fall of 2017, Mr. Lighthizer accused Mr. Mnuchin and Gary D. Cohn, the former National Economic Council director, of bad-mouthing him to free-trade Republican senators.
The argument grew so heated that the White House chief of staff, John F. Kelly, quickly pulled the combatants into the nearby Roosevelt Room and away from the president, where the argument raged on for a few more minutes, according to two witnesses.
Emily Davis, a spokeswoman for the United States trade representative, disputed the account.
Mr. Lighthizer has since worked to increase his own face time with Mr. Trump. He has joked to colleagues that he has more influence with Mr. Trump during winter months because he is able to hitch a ride on Air Force One during the president’s flights down to Mar-a-Lago, which is several miles from Mr. Lighthizer’s own $2.3 million waterfront condo in Palm Beach, Fla.
He used that access to argue to Mr. Trump that the United States has never had more leverage to extract structural reforms on intellectual property, forced transfer of technology from American companies and cybercrime. But while Mr. Trump has jumped at the chance to claim victory in changing China’s ways, experts say that what Mr. Lighthizer is demanding would require significant shifts in how Beijing’s central government and its manufacturing sector coordinate their activities, and that might simply not be possible in the short term.
“Good luck with that,” Mr. Scissors said.
Those who know Mr. Lighthizer say he will try to force concessions through a combination of pressure tactics, like tariffs, and public condemnation. Mr. Lighthizer — who described his own negotiating style as “knowing where the leverage is” during a 1984 interview — typically presents few specific demands during initial talks while publicly bashing efforts by the other side.
He used that approach during recent talks with Canada and Mexico to revise the North American Free Trade Agreement, criticizing foreign counterparts as intransigent and characterizing complaints by American businesses as pure greed.
Mr. Lighthizer’s unsparing view of China comes, in part, from his childhood in Ashtabula, Ohio, an industrial and shipping town on the Great Lakes hit by the offshoring of steel and chemical production. For much of his career, Mr. Lighthizer was a lonely protectionist voice in a Republican Party dominated by free traders, alternating between jobs in government and a lucrative private law career representing large American corporations like United States Steel in trade cases against China.
Mr. Lighthizer found his way into Mr. Trump’s orbit through his work in the steel industry, where he gained prominence by filing lawsuits accusing Japan and China of dumping metals into the United States, in violation of trade laws. In 2011, Mr. Lighthizer caught Mr. Trump’s eye with an opinion piece in The Washington Times, in which he defended Mr. Trump’s approach to China as consistent with conservative ideology and compared the future president to Republican icons like Ronald Reagan.
Taciturn in public and self-deprecating in private, Mr. Lighthizer sees himself as a serious player on the world stage: Two recent guests to Mr. Lighthizer’s Georgetown townhouse were greeted by the stern visage of their host staring down at them from an oil portrait on the wall.
The trade adviser is guarded around Mr. Trump, often waiting until the end of meetings to make his points and quietly nudging the president away from actions he views as counterproductive, current and former officials said. That was the case in mid-2017 when he cautioned the president against withdrawing unilaterally from the World Trade Organization, adding for emphasis, “And I hate the W.T.O. as much as anybody.”
He does not always get his way. In the wake of a new trade agreement with Mexico and Canada this fall, Mr. Lighthizer urged Mr. Trump to consider easing steel and aluminum tariffs on those countries and replacing them with less burdensome quotas. Mr. Trump rejected his plan, according to negotiators from all three countries.
A poker-faced Mr. Lighthizer broke the news to his Mexican and Canadian counterparts by declaring the proposal was inoperative, one of the officials said.
The president also ignored Mr. Lighthizer’s advice in early December when he announced that he intended to begin the six-month process of withdrawing the United States from Nafta in order to pressure House Democrats into passing the new United States-Mexico-Canada Agreement.
That threat undermined months of quiet negotiations between Mr. Lighthizer, labor groups and Democrats like Senator Sherrod Brown of Ohio and Representative Nancy Pelosi of California to try to win their support for the new trade deal. Mr. Trump has yet to follow through on his threat, and Mr. Lighthizer continues trying to work with Democrats to get the new trade deal approved.
“Bob is trying to provide stability and focus in a completely chaotic environment,” Mr. Brown said. “I can’t speak for Bob, but I am certain he is frustrated. How could you not be frustrated as the U.S. trade representative for a president who knows what his gut thinks but hasn’t put much of his brains into trade?”
Trump’s Tariffs Prompt Global Threats of Retaliation
The European Union detailed a three-step plan to penalize $3.5 billion of American trade — the same amount of European steel and aluminum the bloc estimates would be harmed by the planned tariffs. It proposed taxing American exports including bourbon, bluejeans, orange juice, cranberries, rice and motorcycles.
A European Union official said that the bloc had been preparing for the announcement for months and that everything was in place for a swift, proportionate response.
.. The measures were intended to put pressure on politically sensitive areas, trade analysts said. Harley-Davidson motorcycles are made in the home district of Speaker Paul D. Ryan, Republican of Wisconsin. Orange juice comes from the swing state of Florida. Restrictions on Kentucky bourbon could add pressure on the Senate majority leader, Mitch McConnell, who is from the state.
.. Retaliation could hit hardest in many of the rural communities that were strongholds for Mr. Trump. Farmers are among America’s largest exporters, and often become a target in trade spats
.. She said the agricultural community was “rightly nervous” about the prospect.
.. Canada and Mexico were America’s No. 1 and No. 3 largest agricultural markets in 2016, and South Korea is a major market for beef, corn, pork and fresh fruit
.. The United States exports cotton to Turkey and wheat and dairy to Brazil, other major suppliers of steel.
.. Peter Navarro, a top White House trade adviser, said he did not believe any country would retaliate, “for the simple reason that we are the most lucrative and biggest market in the world.”
“They know they’re cheating us, and all we’re doing is standing up for ourselves,” he added.
.. if the United States was willing to impose penalties like these on its close trading partners, other countries would be less eager to negotiate trade deals with the United States. “What is the benefit of having a special relationship?” he asked. “I think there could be a lot of unintended and unforeseen consequences.”