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Policy Summary

President Donald Trump has had a clear obsession with curbing migration from across the Mexican border since before he took office. Recently, though  he has tried unsuccessfully to propose a new tariff policy, linked to Mexican immigration, of sorts that makes almost as little sense as the border wall he has tried so hard to build.

For some time, Trump has made threatens regarding placing tariffs on the many products and goods that the U.S. imports from Mexico on an annual basis. Employing the negotiation by bullying technique that he has displayed a continuous fondness for, he recently announced that he would not be levying the 5% tariff on goods imported from Mexico, provided America’s trade partner took significant steps to curb the flow of immigrants crossing the U.S. Mexican border. This applied not just to Mexican immigrants but those from  Central American neighboring countries such as Guatemala and Honduras. In his typical fashion , Trump felt compelled to warn Mexico that the tariffs he is planning to implement could quickly rise to 25% if Mexico declined any of his conditions.

The economies of Mexico and the United States are deeply intertwined and Trump’s proposed Mexican tariff would have large-scale repercussions on businesses and consumers in the US. There was a huge outcry against the tariff  from both Democratic and Republican members of Congress which forced the President to withdraw his ill thought out policy

Trump tried to spin the withdrawal of his Mexican tariff as a victory, that Mexico had agreed to collaborate with the US on immigration. However,. the New York Times reported that Mexico had agreed to the terms of Trump’s “deal” months prior to his recent statements in a negotiation with  former Secretary of Homeland Security Kirstjen Nielson with Trump having little to do with the initial agreement. Trump was quick to resume his threatens regarding implementing tariffs against Mexico, leaving citizens of both nations to wonder if any actual progress had been made.

As of June 20th, Bloomberg reports that no specific plan regarding tariffs has been set or proposed by Trump. He hasn’t mentioned redacting the threat of tariffs that formed the basis of his initial plan but he also hasn’t said otherwise. Mexico seems willing to negotiate if a new deal is presented, but as it stands, Trump appears to have no clear plan for moving any deal forward.

Analysis

Throughout Trump’s presidency, most news coverage regarding U.S. Mexico relations has focused on immigration policy. Throughout the fiscal year, though, many imported goods that play a pivotal role in U.S. markets also cross the border. Automobiles, including tractors and other farming equipment and the parts on which U.S. auto manufacturers depend are the most common commodities for the U.S. to import from Mexico but the list includes other products. The list includes telephones, television sets and data processors, popular goods for the U.S. to import, as are certain beers, including Corona and Pacifico and of course avocados.

As has proven a common theme through the course of Trump’s trade war, Trump was quick to claim that the inevitable cost that such tariffs would have on his nation’s economy was justified by the gains it would reap. His logic was, as he tweeted, that if the tariffs increased manufacturing costs too steeply than the companies would simply move their operations to the U.S. From an economic standpoint, though, that seems highly unlikely. The trade war hasn’t steered companies that manufactured outside the U.S. to shift operations to our soil. Rather, it has done exactly the opposite, with companies such as Harley Davidson shifting  operations overseas to avoid the increased manufacturing costs imposed by Trump’s aluminum and steel tariffs of 2018. The automotive industry would be the most affected were such tariffs to be levied against Mexican imports

Trump had initially claimed that he would begin by implementing a 5 percent tariff in June and increase it each month until the tariff reached 25 percent. In such a system, businesses would see a steep increase in production costs and would be forced to increase their prices. This, in turn, would likely cause a decline in sales for vehicles manufactured in Mexico and built in the U.S.  Such a reality would lead to both nation’s becoming less competitive within the global economy.

Vox recently reported that the costs of Trump’s proposed tariffs against Mexican imports could easily lead to catastrophic costs for the typical American household. The Peterson Institute for International Economics’ senior fellow Gary Hufbauer spoke with Vox’s Dylan Scott, stating that

“A 5 percent tariff on $360 billion worth of imports, spread across 100 million households, equals $180 for every American family in a year. If the tariffs gradually increase to 25 percent, as Trump has threatened to do, that is $900 for each household in a year.”

It is clear that Trump’s proposal of levying tariffs against Mexico is based on the same faulty logic that led to his earlier trade policies. The past few years have seen Mexico surpass Canada as one of the U.S.’s primary trading partners, second only to China. From a purely economic standpoint, there is no reason to implement such tariffs.

It is hardly surprising that Trump would seek to use tariffs as a weapon to curb immigration. His obsession with immigration has proven boundless and he has made no moves to hide the fact that he considers tariffs to be an effective weapon, despite the overwhelming evidence pointing to the contrary. The ultimate conclusion we can draw them all of this is that Trump knows he has failed at multiple attempts to curb immigration across his nation’s southern border. He knows that implementing tariffs would prove detrimental to the Mexican economy as the U.S. is one of their primary trading partners and the threat of such a reality might be force the Mexican government to play ball on his terms. Trump has also displayed a willingness to make threats then quickly retract them. Whether he will actually move forward with these tariffs against Mexico remains to be seen but it is clear that to do so would cause significant problems for both economies.

Resistance Resources:

  • The Council on Foreign Relations is a nonpartisan think tank and research organization that specializes in matters involving foreign policy and international relations
  • The Peterson Institute for International Economics is a nonpartisan think tank that produces research and analysis on international economic policy related matters.
  • The Economic Policy Institute is a nonpartisan think tank that provides in depth research on economic policy related matters, analyzing the economic impact of policies and proposals

Photo by Jorge Aguilar

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