Tariff Temper Tantrum: Trump “Created a Fake Crisis & Has Announced a Fake Solution” with Mexico

Facing an escalating showdown with Mexico and an insurrection from his own party, President Trump said Friday the United States had reached a deal with Mexico to avert a 5% tariff on all imported Mexican goods that was due to take effect today and increase to 25% by October. Trump’s announcement came after three days of Mexico-U.S. negotiations in Washington. Officials said it was based around Mexico’s commitment to deploy National Guard forces throughout the country, in particular to its southern border, in order to stem the flow of northbound migrants headed toward the US. Under the deal, they said Mexico also agreed to expand what is known as the Remain in Mexico policy, which allows the U.S. to send back Central American asylum-seeking migrants to Mexico while their cases make their way through immigration courts. However, on Saturday, The New York Times reported that the plan to send troops to the border had already been agreed to in March. We speak with Lori Wallach, director of Public Citizen’s Global Trade Watch and author of “The Rise and Fall of Fast Track Trade Authority.”

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.

Senate Republicans Warn White House Against Mexico Tariffs

Republican senators sent the White House a sharp message on Tuesday, warning that they were almost uniformly opposed to President Trump’s plans to impose tariffs on Mexican imports, just hours after the president said lawmakers would be “foolish” to try to stop him.

Mr. Trump’s latest threat to impose 5 percent tariffs on all goods imported from Mexico, rising to as high as 25 percent until the Mexican government stems the flow of migrants, has prompted some of the most serious defiance in the Republican ranks since the president took office.

Republican senators emerged from a closed-door lunch at the Capitol angered by the briefing they received from a deputy White House counsel and an assistant attorney general on the legal basis for Mr. Trump to impose new tariffs by declaring a national emergency at the southern border.

I want you to take a message back” to the White House, Senator Ted Cruz, Republican of Texas, told the lawyers, according to people familiar with the meeting. Mr. Cruz warned that “you didn’t hear a single yes” from the Republican conference. He called the proposed tariffs a $30 billion tax increase on Texans.

“I will yield to nobody in passion and seriousness and commitment for securing the border,” Mr. Cruz later told reporters. “But there’s no reason for Texas farmers and ranchers and manufacturers and small businesses to pay the price of massive new taxes.”

The president’s latest foray into a global trade war has troubled economists and roiled stock and bond markets. The Federal Reserve chairman, Jerome H. Powell, hinted on Tuesday that the central bank could cut interest rates if the trade war started to hurt the economy. The remarks sent stocks higher for their strongest day in months.

But senators were mindful of the long-term stakes for their home states.

Texas would be hit the hardest by the proposed tariffs on Mexican products, followed by Michigan, California, Illinois and Ohio, according to the U.S. Chamber of Commerce. A 25 percent tariff would threaten $26.75 billion of Texas imports.

Senator Kevin Cramer, Republican of North Dakota, expressed support for the president, as did Senator Thom Tillis of North Carolina, who is up for re-election in 2020 and faced blistering criticism after flip-flopping this year on whether he would vote to disapprove the president’s emergency declaration to build the wall.

“I think Mexico could help us solve the crisis down at the border,” Mr. Tillis told reporters. “What’s the tax on handling 80,000 additional illegal immigrants coming across the border, housing them, adjudicating them? You’ve got to look at the total cost of the prices.”

If a revolt comes to pass, it would start in the Senate, but House Republicans would have to join the effort to overturn a veto.

Representative Hakeem Jeffries of New York, the chairman of the House Democratic caucus, declined to forecast whether the House would try to block the tariffs on Mexico.

“The administration’s tariff policy is erratic and all over the place,” he said. “We will see what the Senate Republicans ultimately decide to do, but we will certainly strongly consider proceeding in a way that is appropriate and consistent with our legislative powers.”

Mr. Trump seemed unimpressed when a reporter noted that Mexican officials said that they had increased the number of migrants they had apprehended coming into their country from elsewhere in Central America. He offered no specifics on what it would take to keep the tariffs from being imposed.

“Look, millions of people are flowing through Mexico,” Mr. Trump said. “That’s unacceptable.”

 

Senate Republicans Weigh Moves to Block Trump on Mexico Tariffs

Trump defends plan as needed to address migrants from Central America, says lawmakers would be making a mistake if they try to stop him

Democrats have roundly opposed Mr. Trump’s border stance and his plan to impose tariffs on Mexico. But his announcement triggered blowback from some Senate Republicans as well, who returned this week from a Memorial Day recess ready to consider their options to stop him.

Republican senators will meet behind closed doors Tuesday for a weekly lunch, where the subject is expected to be at the top of the agenda. A White House deputy counsel is expected to attend to discuss the matter.

“If [White House officials] continue down this path and they escalated the tariff, I suspect Congress is going to want to probably be heard from, for sure,” Senate Majority Whip John Thune (R., S.D.) said on Monday night. He said that Republicans were still in the process of studying the legal authority on which the administration would rely to impose the tariffs.

In comments at a press conference in London alongside U.K. Prime Minister Theresa May, Mr. Trump brushed off Republican senators’ concerns, calling any move to block him a mistake.

I don’t think they will do that—if they do, it’s foolish,” Mr. Trump said, when asked what he thought of potential Republican efforts to block his Mexico tariffs. On the state of the talks with Mexico, he said: “We are going to see if we can do something, but I think it’s more likely that the tariffs go on.”

One issue is whether the national emergency Mr. Trump declared earlier this year to divert funds to Mexico border-wall construction also gives him the power to impose tariffs. Some Republicans suspect he sees that declaration as providing the legal basis to impose ever-increasing tariffs as a mechanism to pressure Mexico to stem the flow of migrants. The White House hasn’t publicly cited its legal basis for the tariffs plan.

At a meeting with Senate Republican aides on Monday, one White House counsel indicated that the president intended to rely on a statute called the International Emergency Economic Powers Act to impose the tariffs, which is triggered by an emergency declaration. Some Senate GOP aides expect Mr. Trump to declare a new emergency or amend his existing declaration in order to put the tariffs into place.

Republican aides say such a move could prompt a vote to end the tariffs. The vote could be initiated in either the Senate or the House. It is unclear which chamber would vote first, although beginning with a Senate vote might provide political cover to House Republicans who are generally reluctant to challenge Mr. Trump.

A vote to terminate the tariffs is seen as the fastest route to block the president, since such a measure is protected against stalling tactics. Congress used a similar approach earlier this year when it voted to reject Mr. Trump’s national emergency declaration.

But Mr. Trump vetoed that measure, and Congress didn’t muster enough votes to override the veto, meaning the national emergency stayed in place.

Congress could also amend the International Emergency Economic Powers Act to make clear that it can’t be used to impose tariffs. The law is typically used to freeze assets and has never before been used in the way that the president contemplates, creating potential legal problems for the administration.

“This is certainly breaking new ground, and that creates both a legal problem potentially if there are court challenges, and it’s also clear from the way Republicans are responding that some of them just don’t like this idea,” said Chris Edelson, an American University government professor who wrote a book on emergency presidential power.

House Democratic leaders have been critical of Mr. Trump’s decision to impose tariffs, but said they were waiting to see how Senate Republicans respond.

“The problem that we confront in this country is that the president often conducts himself in an erratic fashion as it relates to economic policy, particularly in terms of his deployment of tariffs,” Rep. Hakeem Jeffries of New York, chairman of the House Democratic caucus, said Tuesday.

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.

President Trump believes, not without good reason, that the Mexican government is not doing its utmost to stop the illegal flow of Central Americans crossing the U.S. border. And so he has responded with . . . a $17 billion–a–year–and–rising sales tax on Americans.

The president loves tariffs. He believes that they are an effective means of protecting American firms from unfair overseas competition and a good negotiating tool as he works to reform trade agreements that he believes are disadvantageous to Americans. But the question of who ends up actually paying any given tax is complicated. The price of those tariffs, and the retaliatory tariffs they have provoked, is very high for American companies: For example, the tariffs Beijing imposed in response to Trump’s have cost American farmers an enormous part of their export market (half of exported U.S. soybeans used to go to China; the tariffs have been a gift to Brazilian producers), but the U.S. tariffs themselves are an enormous problem, too. Many American manufacturers import raw materials and components from abroad, and complex products such as automobiles and electronics may cross the border several times in the course of production.

A 5 percent tariff on Mexican goods would notionally amount to about $17 billion on U.S. imports from Mexico, touching everything from industrial components to fruit and crude oil. In reality, it is difficult to say how much money would be raised, because buyers respond to tariffs in unpredictable ways. In any case, many of those costs will be borne by American consumers and — this cannot be emphasized enough — American businesses that rely in some part on imported inputs. More important, it would cause uncertainty around a North American supply chain that has evolved organically over many years as the result of enormous investment by American companies and their business partners.

President Trump envisions a tariff that will potentially ratchet up to 25 percent.

The president here is unnecessarily complicating his own life. He has just overseen the successful renegotiation of NAFTA, which will be reconstituted as the U.S.–Mexico–Canada Agreement (USMCA). But that agreement has not yet been ratified — not by the United States, and not by Mexico. Imposing punitive tariffs over a policy dispute unrelated to trade five minutes after negotiating a new trade pact makes the Trump administration — and the United States — look like an unreliable negotiating partner. Mexico is not wrong to resent it, and even Trump allies such as Senator Chuck Grassley (R., Iowa) are against him on this.

Trump’s stunning decision to escalate trade wars with China and Mexico signals a turning point for U.S. policy

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.