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.
‘The sleeper cells have awoken’: Trump and aides shaken by ‘resistance’ op-ed
The stark and anonymous warning was a breathtaking event without precedent in modern presidential history.
“For somebody within the belly of the White House to be saying there are a group of us running a resistance, making sure the president of the United States doesn’t do irrational and dangerous things, it is a mind-boggling moment,” historian Douglas Brinkley said.
.. In the Times column, the official writes about the late senator John McCain (R-Ariz.) in heroic terms, describing him as “a lodestar for restoring honor to public life and our national dialogue.”
This invocation angered Trump, who in his private talks with advisers and friends expressed particular dismay because he has long viewed McCain as a personal enemy
.. The president was already feeling especially vulnerable — and a deep “sense of paranoia,” in the words of one confidant — after his devastating portrayal in Woodward’s book. He was upset that so many in his orbit seemed to have spoken with the veteran Washington Post investigative journalist, and he had begun peppering staffers with questions about who Woodward’s sources were.
.. Trump already felt that he had a dwindling circle of people whom he could trust, a senior administration official said. According to one Trump friend, he fretted after Wednesday’s op-ed that he could trust only his children.
.. channeled her boss’s rage and echoed some of his favorite attacks on the media.
Her statement began by invoking Trump’s 2016 election victory and noting, “None of them voted for a gutless, anonymous source to the failing New York Times.” Sanders went on to demand that the paper apologize for what she called the “pathetic, reckless, and selfish op-ed,” and urged the anonymous author to leave the White House.
“The individual behind this piece has chosen to deceive, rather than support, the duly elected President of the United States,” she said in her statement. “He is not putting country first, but putting himself and his ego ahead of the will of the American people. This coward should do the right thing and resign.”
.. The outing of the op-ed’s author is virtually inevitable, according to forensic linguists, who work in both academia and private industry, figuring out the authors of anonymous texts in lawsuits, plagiarism cases and historical puzzles.
.. “a problem with public people is that a lot of their published work is edited, so it’s like mixing fingerprints or DNA. You don’t always know who the real author is.
.. Brinkley, the historian, said the most analogous example of disloyalty and advisers disregarding the president’s wishes was in Richard Nixon’s final year as president. He explained that Nixon would “bark crazy orders” to aides that they intentionally disregarded.
“You’d have to go back to Hans Christian Andersen, ‘The Emperor Has No Clothes,’ to see this syndrome where the president’s reality happens to be so different from his own senior advisers,” Brinkley said.
Another epic economic collapse is coming
.. the contraction probably will begin with the annual budget deficit exceeding $1 trillion.
.. The president’s Office of Management and Budget — not that there really is a meaningful budget getting actual management — projects that the deficit for fiscal 2019, which begins in six weeks, will be $1.085 trillion. This is while the economy is, according to the economic historian in the Oval Office, “as good as it’s ever been, ever.”
.. The fastest — 13.4 percent — was 1950’s fourth quarter, perhaps produced largely by bad news: The Cold War was on, the Korean War had begun in June, and fear of the atomic bomb was rising (New York City installed its first air-raid siren in October), as was (consequently) a home-building boom outside cities and “scare buying” of products that might become scarce during World War III.
.. Today, Shiller says, “it seems likely that people in many countries may be accelerating their purchases — of soybeans, steel and many other commodities — fearing future government intervention in the form of a trade war.” And fearing the probable: higher interest rates.
.. among those economies, ours is performing especially well. What, however, if this is significantly an effect of exploding debt? Publicly held U.S. government debt has tripled in a decade.
.. the political class is more united by class interest than it is divided by ideology. From left to right, this class has a permanent incentive to run enormous deficits — to charge, through taxation, current voters significantly less than the cost of the government goods and services they consume, and saddle future voters with the cost of servicing the resulting debt after the current crop of politicians has left the scene.
.. This crop derives its political philosophy from the musical “Annie”: Tomorrow is always a day away. For normal people, however, the day after tomorrow always arrives.
Military Quietly Prepares for a Last Resort: War With North Korea
And beginning next month with the Winter Olympics in the South Korean town of Pyeongchang, the Pentagon plans to send more Special Operations troops to the Korean Peninsula, an initial step toward what some officials said ultimately could be the formation of a Korea-based task force similar to the types that are fighting in Iraq and Syria.
.. President Trump’s own words have left senior military leaders and rank-and-file troops convinced that they need to accelerate their contingency planning.
.. In perhaps the most incendiary exchange, in a September speech at the United Nations, Mr. Trump vowed to “totally destroy North Korea” if it threatened the United States, and derided the rogue nation’s leader, Kim Jong-un, as “Rocket Man.” In response, Mr. Kim said he would deploy the “highest level of hard-line countermeasure in history” against the United States, and described Mr. Trump as a “mentally deranged U.S. dotard.”
.. on Jan. 2, Gen. Tony Thomas, the head of the Special Operations Command in Tampa, Fla., warned the 200 civilians and service members in the audience that more Special Forces personnel might have to shift to the Korea theater from the Middle East in May or June, if tensions escalate on the peninsula.
.. Military officials said General Milley has cited the ill-fated
- Battle of the Kasserine Pass during World War II, when unprepared American troops were outfoxed and then pummeled by the forces of Field Marshal Erwin Rommel of Germany. General Milley has also recently mentioned
- Task Force Smith, the poorly equipped, understrength unit that was mauled by North Korean troops in 1950 during the Korean War.
.. fretted about a loss of what he has called muscle memory: how to fight a large land war, including one in which an established adversary is able to bring sophisticated air defenses, tanks, infantry, naval power and even cyberweapons into battle.
.. There have been no travel warnings advising Americans to stay away from South Korea or Japan, and no advisories warning American businesses to be cautious.
.. It is unlikely that the Pentagon would launch military action on the Korean Peninsula without first warning Americans and others there, military officials said — unless the Trump administration believes that the United States could conduct a one-time airstrike on North Korea that would not bring any retaliation from Pyongyang to nearby Seoul.
.. Some officials in the White House have argued that such a targeted, limited strike could be launched with minimal, if any, blowback against South Korea — a premise that Mr. Mattis views with skepticism,
.. But for Mr. Mattis, the planning serves to placate Mr. Trump.
.. protects Mr. Mattis from suggestions that he is out of step with Mr. Trump.
.. The maneuvers were aimed at forcing an enemy to fight on different fronts early in combat.
.. Officials said maneuvers practiced in the exercise, called Panther Blade, could be used anywhere, not just on the Korean Peninsula.
.. Another exercise, called Bronze Ram
.. Air Force B-1 bombers flying from Guam have been seen regularly over the Korean Peninsula
.. B-52 bombers based in Louisiana are expected to join the B-1s stationed on Guam later this month
.. three B-2 bombers and their crews had arrived in Guam from their base in Missouri.
.. unlike the very public buildup of forces in the run-up to the 1991 Persian Gulf war and the 2003 Iraq war .. the Pentagon is seeking to avoid making public all its preparations for fear of inadvertently provoking a response by Mr. Kim
.. “I’ll also add that right now, the Defense Department is in support of Secretary of State Tillerson, who’s got a campaign to be the lead with North Korea in a diplomatic endeavor,” General Jamieson said.