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Mexico Tariffs: Trump’s Credibility Deficit
U.S. president shatters all hope for North American trade stability.
LATINVEX EDITORIAL
While President Donald Trump was in Europe marking D-Day, Mexico had its own D-Day, as newspaper El Financiero headlined a Bloomberg story it published on Mexican officials' frantic efforts to avoid new tariffs.
The U.S. president sent shockwaves globally when he announced on May 30 that he planned to impose 5 percent tariffs on all Mexican imports on June 10 unless that country stopped all illegal emigration to the United States. Failure to do so would result in a gradual increase of tariffs through October when they would hit 25 percent.
"Beyond breaking with tradition, the tariffs are simply a bad idea," Tony Garza, Counsel in the Mexico City office of White & Case and a former U.S. ambassador to Mexico in the George W. Bush Administration, argues. "Mexico is one of the United States' largest trade partners, and hundreds of billions of dollars in pieces, parts, energy products, fruits, and vegetables cross the border each year. These tariffs—combined with Mexico's likely retaliatory ones—will only increase costs that will hit U.S. companies' bottom lines and consumers' wallets at a time when the U.S. economy appears to be slowing."
Although Trump was seen as a protectionist before assuming office in 2017, the latest announcement still came as a surprise since the U.S. president signed the United States-Mexico-Canada Agreement (USMCA) only six months ago -- on November 30, 2018 – after intense negotiations between the three countries.
"It does come as a gut punch in the efforts of those who are trying to get USMCA approved," Stephen Lamar, executive vice president of the American Apparel & Footwear Association, told NPR.
The auto sector is expected to be one of the hardest hit by the new tariffs.
"We just did not see this coming," Ann Wilson, senior vice president of government affairs for the Motor & Equipment Manufacturers Association, told NPR."Manufacturers flourish in this country when they have certainty. Now we have a real question about whether that certainty even exists."
MEMA represents more than 1,000 companies that manufacture motor vehicle components and systems for the original equipment and aftermarket segments of the light vehicle and heavy-duty motor vehicle manufacturing industry in the United States.
The USMCA was supposed to be Trump’s way of “fixing” the hugely successful North American Free Trade Agreement (NAFTA) that Trump had consistently bad-mouthed as a failure despite clear evidence of the opposite.
Yet, at least the USMCA was seen as better than the United States exiting NAFTA without any equivalent trade deal in place. It was also seen as a welcome “end chapter” to the uncertainty around NAFTA during Trump’s two first years.
Ten days before his shock announcement, Trump had finally lifted year-long tariffs on aluminum and steel imports from Mexico and Canada, which were seen as the key obstacle for USMCA ratification by legislatures in the United States, Mexico and Canada.
John Murphy, senior vice president of international affairs at the U.S. Chamber of Commerce, told The Washington Post that there had been “new momentum” behind USMCA, especially after Trump recently lifted tariffs on steel and aluminum from Canada and Mexico. “But this latest tariff threat represents a major new obstacle to approval of USMCA, and the chamber is urging the administration to abandon this threat immediately,” he said.
Unless Trump backtracks, the outlook for USMCA passage is indeed gloomy. He may or may not do so, following his highly bizarre pattern of dealing with almost any issue.
However, even if the U.S. president cancels the tariff threats, the damage has already been done.
No trade agreement signed by Trump is worth anything. He can at any time change his mind for whatever reason.
“How can you trust Trump to honor a deal?” Chris Krueger, Washington strategist at Cowen said in a note quoted by CNBC. “Mexico submitted USMCA this week for ratification...Trump’s signature trade achievement was moving downfield...and he just threatened Mexico ... with unilateral tariffs on ALL Mexican goods exports to the U.S.”
While Mexico’s government – led by its own irrational president Andres Manuel Lopez Obrador – struggled to react, even a new deal reached by Trump and Mexico can be rescinded at any time.
Meanwhile, several possible scenarios loom:
--Trump imposes the 5 percent on Monday, but subsequently reaches an agreement with Mexico and lifts the measure.
--Trump fails to reach any agreement and Congressional Republicans form an alliance with Democrats to lift the tariffs (with two thirds of Congress, that body can override any veto from Trump).
--Trump fails to reach any agreement, Congress fails to block the tariffs and they gradually go up to 25 percent in October.
Many of Trump’s own advisors – including Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer – opposed the new tariffs and the U.S. Chamber of Commerce, all leading economists and various industry groups – from autos to energy – are warning the U.S. president of the massive damage to U.S. consumers business and economic growth. (See Trump Mexico Tariffs: Key Facts)
Yet, Trump has shown a reckless disregard for the consequences of his policies before. In January he finally ended the longest government shutdown in history. It cost the economy $11 billion due to lost output from federal workers, delayed government spending and reduced demand, according to Forbes.
And for what? So, Trump could pressure Congress to build a $5.7 billion wall on the border to Mexico. In the end it was all for nothing since Congress refused (but Trump sidestepped its authority anyways by declaring a “national emergency”.)
Trump – already known for his lies (a dozen per day), and bullying and insults of key allies – will now also be known as the man who lost the United States all credibility on trade issues.
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