Latin America Advisor

A Daily Publication of The Dialogue

Has Trump Gone Too Far With New Tariffs on Mexico?

President Donald Trump last Thursday announced that the United States would impose new tariffs on imports from Mexico beginning June 10, saying the country has failed to stop flows of migrants from coming to the United States. // File Photo: White House. President Donald Trump last Thursday announced that the United States would impose new tariffs on imports from Mexico beginning June 10, saying the country has failed to stop flows of migrants from coming to the United States. // File Photo: White House.

U.S. President Donald Trump announced last week that he would impose new tariffs that could rise as high as 25 percent on all of Mexico’s exports to the United States unless Mexico “substantially stops” the flow of migrants coming to the United States. What effect will the tariffs have on the economies of both countries, and how has the private sector reacted? Will the duties, which Trump announced less than two weeks after the United States reached a deal with Mexico and Canada to eliminate steel and aluminum tariffs, derail the pending ratification of the USMCA trade accord? What other developments could affect the USMCA’s ratification? Will the USMCA be ratified during Trump’s current term in office?

James R. Jones, member of the Advisor board, chairman of Monarch Global Strategies and former U.S. ambassador to Mexico: “Trump’s latest half-baked trade tweet policy introduces a new level of uncertainty into the global economic outlook that doesn’t bode well for either the United States or Mexico. The first problem is that this decision was based on very faulty information. Second, the solution aims at the wrong target. The third is that it invites tariff retaliation by Mexico and very likely other countries that will deepen the economic danger to us. And finally, it could derail movement on the USMCA trade treaty designed to strengthen North American competitiveness and protect and promote vital economic interests in the United States. This appears to be motivated primarily by political considerations, not economic, as a way to motivate the Trump base, which generally opposes both immigration and fair trade. Business abhors uncertainty, and uncertainty will be the result unless the administration quickly clarifies some of the unknowns, such as what specifically will trigger imposition or acceleration of tariffs. If the meetings this week between U.S. Secretary of State Mike Pompeo and Mexican Foreign Minister Marcelo Ebrard and his delegation can make common sense from this mess, I think that there is a reasonably good chance that Congress can approve the USMCA before the August congressional recess. The two key factors to make that happen are organized labor and House Speaker Nancy Pelosi. Both have expressed an open mind on the trade proposal and in my judgment would like to find a way to support it.”

Andrés Rozental, member of the Advisor board, president of Rozental & Asociados in Mexico City and senior policy advisor at Chatham House: “President Trump’s threats against Mexico are nothing new, but this time he has tried to combine three of his campaign promises into one huge gamble: tariffs on Mexican exports as his way of showing he’s reduced his country’s trade deficit, trying to force Mexico into securing its southern border to slow migration pressures on the United States and telling his base that Mexico is, after all, paying for the wall at the U.S.-Mexico border. None of these measures will, however, alter the fact that tariffs hurt the U.S. private sector and consumers above all and will lead to an economic crisis in Mexico, that migrants will always find ways to get to the United States as long as the situation in their countries remains unchanged, and that in the end American tax-paying farmers, manufacturers and consumers will pay for the wall—if it ever gets built. Although Mexico and Canada nevertheless seem ready to move ahead with USMCA ratification as a way of limiting the ability of Congress to reopen negotiations on aspects of the agreement that mostly Democrats would like to change, the chances of getting the deal through the U.S. approval process this year are still slim. The political window for the Democratic leadership to bring the USMCA to the House for a vote is rapidly closing, and there doesn’t seem to be much of a congressional appetite to give President Trump the symbolic victory that he wants for his re-election. In any case, the almost unanimous U.S. private sector pushback against Trump’s unprecedented and probably illegal trade measures against Mexico will ultimately determine whether any of the supposed solutions he hopes to achieve will in fact materialize.”

Carlo Dade, director of the Centre for Trade and Investment Policy at the Canada West Foundation and member of the Mexican Council on Foreign Relations: “The actual announcement of the proposed tariffs came as a shock, but that something like this happened should not have come as a surprise. If the ratification process is to succeed, then building in expectation and contingencies for these types of shocks is necessary. Part of the surprise over the announcement in Canada was due to how well the visit to Ottawa by U.S. Vice President Mike Pence to support ratification of the new agreement had gone. The tariff announcement was a reminder not to get lulled into a false sense of a return to normalcy. The new tariff threat came at the same time that a U.S. congressional staff delegation was preparing to visit Mexico to assess the country’s recent labor reforms passed as a requirement for ratification of the new NAFTA agreement. An already tense situation, Mexico acceding to U.S. demands, has been made worse. This shows an apparent lack of any strategic or even short-term planning or thought, something else that must be factored in by Canada and Mexico going forward. The tariffs announcement also shows that a new NAFTA agreement does not bring certainty to the North American trade relationship. While it will improve business confidence in specific areas, it will not mitigate the largest cause of uncertainty—unilateral exercise of tariff authority ceded to the administration by the Congress. Last month, the U.S. Commerce department concluded that lack of auto production and research in the United States was a security threat and the president can impose tariffs under section 232 of the 1962 trade act. These are the same tariffs just lifted for Canada and Mexico on steel and aluminum. Even though the U.S. administration has said Canada and Mexico are not targets for potential new auto tariffs, neither were the two countries given any ironclad guarantee that this will not change through, for example, a presidential tweet.”

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