The Trump administration has sent a message to the world with its new tariff threats against Mexico: No deal is ever a done deal.
That effect may be bigger than the immediate 5 percent tax on Mexican imports set to go into force June 10 and escalate to 25 percent over time.
Mexico had seemed to resolve its trade tension with the United States, in the form of a reworked Nafta now known as the United States-Mexico-Canada Agreement, or the U.S.M.C.A. The deal was moving toward fruition after the United States lifted steel and aluminum tariffs on its North American neighbors just days ago, and lawmakers in all three countries began considering it.
The new tariff threats, announced by President Trump in a tweet on Thursday, are aimed at pressuring the Mexican government to do more to combat migrants traveling from Central America to the U.S. border to seek asylum. It’s an issue not really related to trade policy at all. But the tariff threats amount to a vivid signal, especially to allies, that there is no permanent trade peace with the Trump administration, and could have significant consequences for future trade negotiations.
If you are working in a trade ministry in Brussels, Tokyo or Ottawa, how much confidence would you have that any deal you strike with American negotiators will have staying power?
“I don’t see how our trading partners will continue to negotiate with us as if we have any credibility going forward,” said Emily Blanchard, a trade economist at Dartmouth’s Tuck School of Business. “They’re going to have a much harder time selling any costly domestic reform or sacrifice that is a concession to the U.S., because the U.S. is acting like an erratic bully.”
The escalating trade war between the United States and China had put Mexico in a promising position, as a destination for businesses making decisions about where to locate their supply chains and wary of tensions with China. Mexico has higher labor costs than China, perhaps, but it has an appealing geographical proximity to the United States and the favorable trade relations that seemed to be codified by the U.S.M.C.A. deal announced at the White House last fall.
Even if the new tariff is canceled before it is scheduled to begin, the action sends a signal that any cross-border supply chain — for decades a crucial strategy for large multinational firms and quite a few smaller ones — is inherently risky.
“Mexico and Canada looked like a safe harbor because you just signed U.S.M.C.A.,” said Philip Levy, a senior fellow on the global economy at the Chicago Council on Global Affairs. “This action is saying, no, there really isn’t a safe harbor.”
Tariffs, Mr. Trump’s Miracle Cure
The president appears to view tariffs as the solution to a wide range of foreign policy problems. It isn’t working.
So we’re going to tax Americans until Mexico stops allowing people from Central America to exercise their legal right to seek admission to the United States?
Seems pretty foolproof.
President Trump announced Thursday evening on Twitter, his preferred medium for policymaking, that he plans to impose a new tariff on all imports from Mexico, “until the illegal immigration problem is remedied.”
The tariff would begin at 5 percent on June 10 and gradually rise to 25 percent by October.
Mr. Trump persists in the falsehood that tariffs are paid by America’s trading partners. The truth is that Mexico would no more pay this tariff than it is paying for the construction of a border wall. The evidence is clear: Mr. Trump’s tariffs are taxes being paid by Americans.
This new tax would sit atop Mr. Trump’s tariffs on aluminum and steel imports, and Mr. Trump’s tariffs on Chinese imports, and the bill is adding up. The United States so far has collected about $19 billion in Trump tariffs. A full 25 percent tariff on Mexican goods could add as much as $87 billion a year to that total.
Mexico would most likely respond by imposing retaliatory tariffs, which is especially bad news for the probable targets: American farmers. About two weeks ago Mr. Trump ended a tariff on Mexican aluminum and steel, and Mexico ended a tariff on American farm goods. So much for that false dawn. Farmers may need to resume the search for new markets.
Taxation is always painful, and always the question is whether the benefits outweigh the pain. In this case, Mr. Trump is using a tariff as a cudgel to induce Mexico’s cooperation in keeping immigrants from America’s southern border. While the cost of the tariff would be paid by Americans, the Mexican economy most likely also would suffer a loss of sales to the United States.
Mr. Trump might succeed in pressuring Mexico to take stronger steps on immigration. Tariffs, however, are a very crude tool. Most of the immigrants seeking to cross the southern border are fleeing problems in Central America that are beyond the control of the Mexican government. Moreover, while Mr. Trump tends to refer to all of the immigrants as illegal, many are exercising a legal right to seek asylum.
Past administrations have sought cooperation from Mexico on immigration issues without disrupting economic relations between the two countries. Mr. Trump’s decision to mix the two issues threatens to disrupt both economies because the manufacturing sectors in Mexico and the United States are tightly intertwined. About two-thirds of trade between the countries is between factories owned by the same company, according to Deutsche Bank.
Other American trading partners with whom Mr. Trump is trying to negotiate new trade deals, including Japan and the European Union, presumably are having the same thought.
Last but not least, messing with Mexico weakens the Trump administration’s hand in its dealings with China. Mr. Trump’s tariffs on Chinese goods have persuaded some American companies to relocate production to Mexico from China. Those companies now face a more difficult choice. Mr. Trump and his advisers also may find it more difficult to rally international support for their efforts to persuade China to make changes in its economic policies.
Mr. Trump’s apparent determination to fight with all of America’s trading partners at once makes it harder to make progress on any particular front.
Once again, Mr. Trump is lashing out rather than acting strategically — and Americans will feel the pain.
Trump defies close advisers in deciding to threaten Mexico with disruptive tariffs
The tactic sowed disruption on multiple fronts Friday as top Mexican officials rushed to Washington to defuse the threat, the stock market tumbled on the news and administration officials offered little explanation of how increasing the prices of goods from Mexico would stop illegal immigration at the border, a goal that has eluded multiple administrations.
“He’s trying to solve a humanitarian situation by creating economic chaos,” said Congressional Hispanic Caucus Chairman Joaquin Castro (D-Tex.), whose state would be devastated in any trade standoff with Mexico. “He doesn’t have a coherent strategy for how to deal with any of this stuff.”
On Friday, Trump defended his threat, insisting that Mexico “has taken advantage of the United States for decades.”
“Mexico makes a FORTUNE from the U.S., have for decades, they can easily fix this problem,” Trump tweeted as the pushback from Republican lawmakers and the business lobby continued to pour in. “Time for them to finally do what must be done!”
Under the White House threat, the United States would implement a 5 percent tariff on all Mexican imports starting June 10 if illegal migration hadn’t stopped by then. That figure would rise to a 10 percent tariff on July 1 and then an additional 5 percent on the first day of each month for three months, maxing out at 25 percent on Mexican products until the country “substantially stops the illegal inflow of aliens coming through its territory.”
In public, Trump administration officials sought to defend the plan by pointing to the rising number of asylum seekers arriving at the southern border — a trend that shows no signs of reversing. The Department of Homeland Security projects that the month of May is on track to record the highest number of border apprehensions in more than a dozen years.
“Let me [be] clear, the current situation is risking the lives of children every day,” acting homeland security secretary Kevin McAleenan said, calling for Mexico to take “significant action” to secure its own southern border.
But privately, top officials were caught in an administration-wide scramble as aides continued to have meetings with Trump on Friday to try to persuade him to reverse course, two officials said.
The idea of enacting unilateral tariffs against Mexico had surfaced repeatedly in internal discussions — and seriously enough that the White House Counsel’s Office had already written a draft of the plan when Trump brought up the proposal again Wednesday, officials said. White House lawyers had been studying their legal options since Trump threatened to shut down the entire U.S.-Mexico border before backing down.
The arguments against the tariffs — voiced internally by Kushner, Lighthizer and Treasury Secretary Steven Mnuchin — did little to dissuade Trump, and Kushner was asked to call Mexican officials to inform them of the impending threat.
After the Wednesday night meeting in the Oval Office, the tariff order was finalized by the White House counsel and the office of Stephen Miller, a senior White House adviser and immigration hard-liner who oversees domestic policy.
But Thursday morning, it was unclear whether Trump would actually follow through, even as he hinted at a “big league” announcement on immigration before leaving Washington for an Air Force Academy address in Colorado. Other White House offices not included in the initial tariff discussions — such as the legislative affairs division and the office of the public liaison — learned as aides came into work Thursday that Trump was considering such an announcement.
By the time a cadre of senior White House aides assembled for a 4:30 p.m. meeting Thursday, the decision to announce the tariffs was essentially finalized, even though it had appeared to be in flux for much of the day. Trump called in from Air Force One as he returned from Colorado and told the staff that he wanted the announcement put out immediately.
Vice President Pence — traveling in Ottawa to meet with Canadian Prime Minister Justin Trudeau and promote the pending trade agreement — separately phoned congressional Republican leaders to inform them of the imminent announcement. The top Republican on the House Ways and Means Committee, Rep. Kevin Brady (Tex.), was told in advance, but Senate Finance Committee Chairman Charles E. Grassley (Iowa), who leads a powerful panel overseeing trade policy, was not, according to their aides.
“The president didn’t blindside his own party,” White House press secretary Sarah Sanders said Friday. “If Republicans weren’t aware, then they haven’t been paying attention.”
From the driveway of the White House, Sanders continued, “Anybody in this country — or frankly, in the world — that says they’re surprised by this has been living under a rock and not paying attention.”
Nonetheless, Trump told people around him that he was well aware that many Republican senators would not like the tariff threat. Indeed, White House legislative staffers were flooded with calls Thursday night, although they referred all the inquiries to the counsel’s office, according to two senior White House aides.
The objections were particularly pointed Friday from proponents of free trade such as Sen. Patrick J. Toomey (R-Pa.), but they also flooded in from border-state Republicans who have been reliable Trump allies but also are on the ballot in 2020.
“While I support the president’s intention of stopping unchecked illegal immigration, I do not support these types of tariffs, which will harm our economy and be passed onto Arizona small businesses and families,” Sen. Martha McSally (R-Ariz.) said in a statement.
A spokesman for Sen. John Cornyn (R-Tex.) conveyed similar sentiments: “Senator Cornyn supports the President’s commitment to securing our border, but he opposes this across-the-board tariff which will disproportionately hurt Texas.”
House Democrats began considering legislative remedies aimed at halting imposition of the tariffs, although one leadership aide said they needed more information from the administration to determine their options.
Mick Mulvaney, the acting White House chief of staff, and economic staffers fielded a range of calls Friday from business leaders. In response, the White House told corporate officials to put pressure on Mexico, according to a senior administration official.
Meanwhile, the Mexican government scrambled to stave off the looming taxes, announcing that its delegation and U.S. officials will meet in Washington on Wednesday, with the sides led by Mexican Foreign Minister Marcelo Ebrard and Secretary of State Mike Pompeo.
“Trump loves tariffs. That’s fine, but this needs to end in policy wins,” said Republican donor Dan Eberhart. “The short-term pain needs to produce a long-term gain for America.”