Trump Militarizes Mexico

In return for having the tariff “indefinitely suspended,” Mexico has agreed to militarize the country using Mr. López Obrador’s newly created National Guard, which is under military command. The effort will start at the southern border, though where it will end is anybody’s guess.

Mr. Trump has claimed victory in his tariff gambit. But it’s unclear how effective the promised troops will be at stopping migrants. The main causes of the crisis are liberal U.S. laws and procedures for claiming asylum, which attract migrants from Central America and other places. Congress has refused to pass reform. But markets work, as more than a half-century of a failed war on drugs proves, and the wild Guatemalan border will not be easily sealed.

.. Meanwhile, AMLO, as the Mexican president is popularly known, also won, though insidiously. The career politician with an authoritarian bent is a backer of Venezuelan dictator Nicolás Maduro. Since taking office in December, he has been cozying up to the military. Now he pockets more power, and with the blessing of Washington. This is a setback for the rule of law.

President López Obrador initially had very high approval ratings. But they began falling when Mexico’s economy slumped in the first quarter, and his attacks on the press alienated even some of his most ideologically sympathetic constituents. Mexicans who were worried about the strongman instincts of their socialist president gained hope that the slowdown would force him to exercise greater restraint.

Then came Mr. Trump’s May 30 threat, and Mexicans rallied behind their president. A poll by the Mexican daily El Financiero last week found that “84% of Mexicans believe that, faced with pressure” from Mr. Trump, “the country should remain united and support” AMLO.

Mr. López Obrador knows how to play politics. In the earliest months of his presidency he encouraged the migrants before taking a more practical stance. In the face of standard Trump hyperbole about Mexico, he calmly sent a delegation to Washington to negotiate. His base is praising the deal, though had it been sealed by an AMLO opponent they would have vigorously denounced it. His opposition is happy because free trade is saved.

An AMLO rally Saturday in Tijuana was originally billed as “an act of unity to defend the dignity of Mexico and in favor of the friendship with the people of the United States.” After the two sides came to agreement, it was changed to a “celebration” of the deal—and of the new life that Mr. Trump breathed into AMLO’s presidency.

..  Blowing up the North American economy to solve the migration crisis never made sense. Before the North American Free Trade Agreement, the average tariff for Mexican goods entering the U.S. was only 4%. Twenty-five years later, North America is a highly integrated productive colossus that depends for its efficiency on seamless cross-border supply networks.

Trump’s Trade Levers Test Long-Term U.S. Alliances

President’s threats against Mexico and others can work in the short run, but global rules could be strained

President Trump’s threat to hit Mexico with tariffs over immigration is the latest and most dramatic step in the weaponization of international economic levers.

In the short run, these moves may serve the U.S. interest. But in the long run, they could do the opposite, by emboldening everyone to ignore international conventions and rules that reserved tariffs and sanctions for specific purposes. The U.S. may also find its “soft power,” the ability to get other countries to cooperate out of shared mutual interest rather than threat, diminished.

Mr. Trump is not the first president to use trade levers to achieve unrelated goals. Congress has granted the president authority to do so in successive statutes, starting with the Trading with the Enemy Act of 1917. These laws enabled Presidents Roosevelt to declare a bank holiday in 1933, Nixon to impose a 10% tariff on foreign imports and Reagan to sanction Nicaragua.

But Mr. Trump’s trade maneuvers have been different in several ways. First, the extent is unprecedented: Last year, he used national-security justifications to impose tariffs on steel and aluminum imports, even from allies, and is threatening the same with autos. He then doubled tariffs on Turkish steel to force that country to release an American pastor. He has imposed new sanctions that would severely penalize any foreign or U.S. company that does business with Iran. A new order barring U.S. companies from doing business with China’s Huawei Technologies Co. because it could be a conduit for spying is ensnaring foreign companies as well.

“There’s nobody like this in the last century,” said Gary Hufbauer, a trade expert at the Peterson Institute for International Economics.

Second, the president has used these powers to achieve narrow goals with little connection to the economic imbalances or national-security threats for which they were intended. In 1985, Mr. Reagan imposed sanctions on Nicaragua using the International Emergency Economic Powers Act of 1977, the same authority Mr. Trump invoked for his tariffs on Mexico. But the U.S. regarded Nicaragua as a hostile client-state of the Soviet Union. Similarly, Mr. Reagan imposed sanctions on construction of a natural-gas pipeline from the Soviet Union to Western Europe for fear it would make American allies vulnerable to Soviet economic blackmail.

Mr. Trump’s actions don’t flow from an overarching geostrategic vision: His tariffs on imports of steel, aluminum and, potentially, autos are designed primarily to shore up favored domestic industries. His threat toward Mexico came because he says it hasn’t done enough to stem the flow of Central American asylum seekers traveling north to the U.S. border. And while his tariffs on China and his sanctions on Huawei superficially resemble Mr. Reagan’s efforts to contain the Soviet Union, Mr. Trump’s calculus is more transactional. He has suggested, for example, that the case against Huawei, which U.S. officials say is motivated by national security, might be dropped as part of a trade deal.

In the near term, these tactics can work. His assumption that other countries will prioritize retaining access to the U.S. market has generally proved correct. Mexico has so far been restrained in responding to his tariff threat. Though U.S. allies haven’t joined its sanctions on Iran—designed to halt all its nuclear activity and support for Syria’s government and groups the U.S. considers terrorists—the threat of American penalties has dissuaded their companies from resuming business there. As a result, Iran’s economy is cratering. Similarly, several Western European companies have suspended business with Huawei even as their governments don’t view it as the threat the U.S. does.

Yet in the long term, these actions, with other trends, likely will weaken ties between the U.S. and its allies and the security and leverage all derive from acting together.

The Pew Research Center has found a growing share of Republican voters, like Mr. Trump, are skeptical that openness to the world or deference to allies serve U.S. interests. And many countries are moving in a similar direction. Nationalists now govern India, Israel, Brazil, the Philippines, Poland, Hungary and Italy, and Chinese President Xi Jinping espouses a more bellicose, China-first agenda than his predecessors. Because they define national interest in the same transactional terms as Mr. Trump, they are more likely to defy the U.S. if it suits their immediate needs. The Philippines, for example, has courted Chinese investment, and Italy has welcomed Huawei. Despite Mr. Trump’s personal fondness for Indian Prime Minister Narendra Modi, India has sought to circumvent the U.S. crackdown on trade with Iran, while the U.S., unhappy with Indian protectionism, has withdrawn tariff preferences from India.

Even countries still ideologically allied with the U.S. will question the value of doing deals if, as with Mexico, they fail to prevent unilateral punishment for nontrade matters.

“As Trump shreds international trust in the U.S., friendly countries have to start preparing Plan Bs: alternatives to relying on America,” said Robert Zoellick, the U.S. trade representative under George W. Bush and later World Bank president. “This shift won’t occur overnight, but the erosion is increasing rapidly, and the negative dynamic weakens U.S. influence.”

The Iran sanctions are an early sign of this diminished leverage. Other countries, tired of how the U.S. uses the dollar’s role in global payments to enforce unilateral sanctions, are devising workarounds. The U.K., Germany and France are building an alternative payments system for dealing with Iran, which has meanwhile begun expanding its stockpile of enriched uranium.

The political trends weakening U.S. leverage with the world are compounded by economic trends. Since 1985, the U.S. share of global gross domestic product has shrunk to 24% from 35%, while China’s has grown to 16% from 3%. This means other countries have less to gain by cooperating with the U.S. and more to lose from antagonizing China.

If U.S. tariffs, real and threatened, shrink trade and investment flows, that would further diminish economic incentives to cooperate, while also weakening the constituencies in other countries favoring openness and integration with the U.S.

But that argument can’t be applied to other countries targeted by Mr. Trump. Aaron Tornell, a Mexican-born economist at the University of California, Los Angeles, noted that since the 1980s, Mexico has turned away from left-wing isolationism toward liberalized markets and closer cooperation with the U.S. on trade and security issues such as narcotics. Advocates in Mexico of this integration argued American presidents and big business would prevent the U.S. from using its enhanced leverage to punish Mexico.

Mr. Trump’s policies could “destroy the political foundations of a country that has been following liberal economic policies for the last 30 years and give more power to those who want to be like Venezuela,” Mr. Tornell said.

Trump’s Tariffs, Once Seen as Leverage, May Be Here to Stay

WASHINGTON — President Trump’s tariffs were initially seen as a cudgel to force other countries to drop their trade barriers. But they increasingly look like a more permanent tool to shelter American industry, block imports and banish an undesirable trade deficit.

More than two years into the Trump administration, the United States has emerged as a nation with the highest tariff rate among developed countries, outranking Canada, Germany and France, as well as China, Russia and Turkey. And with further trade confrontations brewing, the rate may only increase from here.

On Tuesday, the president continued to praise his trade war with China, saying that the 25 percent tariffs he imposed on $250 billion worth of Chinese goods would benefit the United States, and that he was looking “very strongly” at imposing additional levies on nearly every Chinese import.

I think it’s going to turn out extremely well. We’re in a very strong position,” Mr. Trump said in remarks from the White House lawn. “Our economy is fantastic; theirs is not so good. We’ve gone up trillions and trillions of dollars since the election; they’ve gone way down since my election.”

He called the trade dispute “a little squabble” and suggested he was in no rush to end his fight, though he held out the possibility an agreement could be reached, saying: “They want to make a deal. It could absolutely happen.” Stock markets rebounded on Tuesday, after plunging on Monday as China and the United States resumed their tariff war.

Additional tariffs could be on the way. Mr. Trump faces a Friday deadline to determine whether the United States will proceed with his threat to impose global auto tariffs, a move that has been criticized by car companies and foreign policymakers. And despite complaints by Republican lawmakers and American companies, Mr. Trump’s global metal tariffs remain in place on Canada, Mexico, Europe and other allies.

The trade barriers are putting the United States, previously a steadfast advocate of global free trade, in an unfamiliar position. The country now has the highest overall trade-weighted tariff rate at 4.2 percent, higher than any of the Group of 7 industrialized nations, according to Torsten Slok, the chief economist of Deutsche Bank Securities. That is now more than twice as high as the rate for Canada, Britain, Italy, Germany and France, and higher than most emerging markets, including Russia, Turkey and even China, Mr. Slok said.

[A trade war with China could be long and painful.]

The shift is having consequences for an American economy that is dependent on global trade, including multinational companies like Boeing, General Motors, Apple, Caterpillar and other businesses that source components from abroad and want access to growing markets overseas.

While trade accounts for a smaller percentage of the American economy than in most other countries — just 27 percent in 2017, compared with 38 percent for China and 87 percent for Germany, according to World Bank data — it is still a critical driver of jobs and economic growth.

Mr. Trump and his economic advisers say the administration’s trade policy is aiding the American economy, companies and consumers. And despite the tough approach, the administration continues to insist its goal is to strike trade agreements that give American businesses better trade terms overseas.

At a briefing last week, Steven Mnuchin, the Treasury secretary, praised the president’s trade policies for helping economic growth thus far and said the administration supports “free and fair reciprocal trade.”

But if the goal really is freer trade, the administration has never been further from achieving that goal than it is today, said Chad Bown, a senior fellow at the Peterson Institute for International Economics.

“They’re heading in the opposite direction,” Mr. Bown said.

Beyond an update to the United States agreement with South Korea, no other free trade deals have been finalized. Mr. Trump’s revisions to the North American Free Trade Agreement with Canada and Mexico still await passage in Congress, while trade talks with the European Union and Japan have been troubled from the start, with governments squabbling over the scope of the agreement.

Mr. Trump came into office fiercely critical of the failure of past administrations and global bodies like the World Trade Organization for failing to police China’s unfair trade practices. He withdrew the United States from multilateral efforts like the Trans-Pacific Partnership, a multicountry trade deal negotiated by President Barack Obama, and the Paris climate accord.

That shift has created an opening for other countries to step forward as global leaders, including Europe, Japan and China, despite its position as one of the world’s most controversial economic actors. On Tuesday, China submitted its proposals for overhauling the World Trade Organization, including broadening the privileges of developing countries, a status that China claims for itself.

Advocates of free trade fear that governments in India, China, South Africa and elsewhere might find Mr. Trump’s model of protectionism appealing and erect even higher barriers to foreign companies.

While the United States and China could still strike a trade deal that would roll back many of their tariffs, that likelihood has appeared to diminish in recent weeks.

Progress toward a deal came to a sudden halt this month when China backtracked on certain commitments and Mr. Trump threatened to move ahead with higher tariffs.

“We had a deal that was very close, and then they broke it,” he said on Tuesday.

The two sides continue to disagree over whether the deal’s provisions must be enshrined in China’s laws. But they are also arguing over Mr. Trump’s tariffs, which were intended to prod the Chinese to agree to more favorable trade terms for the United States. China insists those tariffs must come off once a deal is reached, but the Trump administration wants some to remain in place, to ensure China abides by its commitments.

In an interview on Tuesday on CNBC, Senator Marco Rubio, Republican of Florida, supported the administration’s tactics.

“Ideally, you wouldn’t have tariffs,” he said. But the United States already faces “all kinds of impediments” to gaining access to the Chinese marketplace, including tariffs, subsidization of industries and theft of intellectual property.

“We already have a series of hundreds of billions of dollars of Chinese penalties against the United States which are threatening our long-term viability,” Mr. Rubio said.

Canada and Mexico have repeatedly pressed the administration to lift its tariffs on steel and aluminum now that negotiations over the Nafta revision are done. The three countries signed the United States-Mexico-Canada Agreement in November, but the pact awaits passage in all three legislatures.

The Trump administration still views the tariffs as a source of leverage in case it needs to demand final changes to the deal from Canada and Mexico. But Canadian and Mexican officials — as well as many in Congress — say the levies are actually an impediment because all three legislatures will refuse to finalize the deal while they are in place.

A similar standoff could soon unfold with the European Union, which Mr. Trump has accused of being a “brutal trading partner” and being “tougher than China.”

The president, who wants Europe to open its markets to American farmers and companies, has already imposed tariffs on European metals and is threatening to levy a 25 percent tax on imports of European cars and car parts if the bloc does not give the United States better trade terms.

Europe has absorbed Mr. Trump’s steel and aluminum tariffs without too much damage. But car tariffs would strike the most important industry in Germany, which has the Continent’s biggest economy. European officials would regard car tariffs as a breach of a truce they worked out last year with Mr. Trump, and they have said they would refuse to negotiate as long as car tariffs were in place.

Cecilia Malmstrom, the European commissioner for trade, repeated on Monday that the European Union had prepared a list of American products worth $22.5 billion — including ketchup, suitcases and tractors — that would face immediate retaliatory tariffs.

“We’re prepared for the worst,” Ms. Malmstrom said in an interview with the Süddeutsche Zeitung newspaper in Germany.

European officials still hold out hope that Mr. Trump will see them as allies and not geopolitical rivals like the Chinese. And he could ultimately delay the decision and extend the Friday deadline for countries that are in trade talks with the United States.

But the president shows no signs of backing away from his stance that tariffs have helped the United States.

On Tuesday morning, Mr. Trump posted on Twitter that tariffs had rebuilt America’s steel industry and were encouraging companies to leave China, making it “more competitive” for buyers in the United States.

“China buys MUCH less from us than we buy from them, by almost 500 Billion Dollars, so we are in a fantastic position,” Mr. Trump tweeted. “Make your product at home in the USA and there is no Tariff.”

The U.S. Wants to Ban Huawei. But in Some Places, AT&T Relies On It.

U.S. officials have told telecommunications executives around the world to steer clear of Huawei Technologies Co., calling the company a national-security threat, but that hasn’t prevented AT&T Inc. T 0.72%from using the Chinese company’s equipment in Mexico.

While AT&T has kept Chinese equipment out of its domestic networks, industry executives say the U.S. company uses Huawei’s gear to run a large part of the wireless network in Mexico, where the electronics giant is as welcome as any other supplier.

Huawei boxes sit atop cellphone towers across Mexico, where AT&T is the No. 3 provider in terms of wireless subscribers. The Dallas company inherited much of its Mexican gear through acquisitions, though executives say it also has used the Chinese supplier to upgrade its 4G network in recent years.

“We are the most significant vendor in this country,” Cesar Funes, a Huawei vice president in Mexico, said in an interview. “We respect, of course, headquarters’ discussions with their governments. We just continue supplying them what we are asked to supply.”

“When we upgraded our Mexico network to 4G LTE, we replaced Huawei in our data core network with equipment from the same suppliers we use in the United States, because it gave us consistency in design and scale in purchasing,” the spokesman said. “We expect to harmonize our networks in the same way when we upgrade to 5G in Mexico.”

Huawei competes with Sweden’s Ericsson AB and Nokia Corp. of Finland to equip cellphone network operators. Most large telecom companies keep two or more suppliers in the mix to maintain leverage in future negotiations.

.. Huawei is the world’s top telecom supplier, according to market analyst Dell’Oro Group. Its success abroad has alarmed American officials who fear that telecom executives won’t be able to avoid using Chinese producers, especially in countries with close economic ties to the U.S.

Today’s 4G networks are linked across borders, but future 5G networks could make national boundaries even less relevant. Mr. Strayer said newer cell-tower equipment will be more than “dumb” conduits for information, leaving a broader swath of cellphone networks vulnerable to potential snooping.

AT&T entered Mexico in late 2014 after the Mexican government enacted legislation to enhance competition in a famously concentrated telecom market. The Dallas company pieced together a wireless company by snapping up two smaller players, Iusacell and Nextel Mexico, inheriting a dense network of machinery bought from Huawei, among other suppliers.

.. AT&T doubled down on Huawei over the next four years as it upgraded the infrastructure it acquired to support 4G service. A senior AT&T executive in 2016 told an industry publication that the supplier’s performance was “excellent.” The company has estimated the price of replacing the Huawei electronics it has in Mexico and found the cost prohibitive, according to a person familiar with the matter.

.. The Chinese company, which also makes cellphones, has spent years raising its profile in Mexico. It had its brand name splashed across jerseys for the popular soccer team Club América—until the AT&T logo took its place. When AT&T’s Mexican headquarters moved into a glassy tower finished in 2016, Huawei moved into a satellite office a floor away to stay close to its client.
.. AT&T has bet that a Mexican middle class can boost its future profits. The company invested more than $7 billion, including the $4.4 billion spent to acquire Nextel and Iusacell, over the past four years to improve its network there.