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Is Trump’s Tough Talk on Mexico Tariffs Just a Publicity Stunt?(Note: companies that could be impacted by the content of this article are listed at the base of the story (desktop version). This article uses third-party references to provide a bullish, bearish and balanced point of view; sources listed in the "Balanced" section)
On May 30, President Trump threatened the imposition of tariffs on Mexican imports to the United States. President Trump announced that a 5% tariff could take effect June 10. The tariff would increase to 10% on July 1 and increase by 5% each month until it reaches 25% on October 1, 2019. Trump, increasingly frustrated with migrants from Central America reaching the U.S. border, wants Mexico to do more to enforce its southern border. Given the economic stakes for both countries, it is likely that an agreement may be reached between the United States and Mexico before tariffs are imposed. What are the pros and cons of implementing tariffs on imports from Mexico?
Mexico needs to deter illegal immigration along its southern border. According to an article in the New York Times, Customs and Border Protection officials encountered 109,144 migrants at the southwestern border in April, the highest total since 2007. President Trump wants Mexico to accept asylum seekers fleeing poverty and violence in Central America or block them from entering Mexico.
The U.S. needs to solve its trade imbalance with Mexico. Tariffs on imports from Mexico could help reduce the U.S. trade deficit. According to data from the Office of the United States Trade Representative, the U.S. goods and services trade deficit with Mexico was $72.7 billion in 2018 with exports amounting to $299.1 billion and imports totaling $371.9 billion.Bring jobs back to the United States. Some view Trump’s tariffs as a remedy to reverse the negative impacts of the North American Free Trade Agreement (NAFTA) that resulted in numerous U.S. companies establishing operations in Mexico due to lower labor costs. An article in Politico quoted President Trump as stating that “in order to not pay tariffs, if they start rising, companies will leave Mexico, which has taken 30% of our auto industry, and come back home to the USA.”
Tariffs represent another tax for U.S. consumers. Many view tariffs as nothing more than a tax on American businesses and consumers. Politico quoted Neil Bradley, chief policy officer at the U.S. Chamber of Commerce, as stating “These tariffs will be paid by American families and businesses without doing a thing to solve the very real problems at the border.”
Unexpected tariffs could undercut trade agreements. Many believe that the surprise move could undercut efforts to execute trade agreements with other countries and could jeopardize passage of the United States-Mexico-Canada agreement (USMCA), a revision of the North American Free Trade Agreement (NAFTA). In a Politico article, Paola Avila, chair of the Border Trade Alliance, is quoted as saying that Trump was undermining the United States’ ability to strike trade deals with any country by threatening new duties on Mexico.
Tariffs could threaten U.S. and global economic growth. Tariffs raise costs on businesses and consumers and could disrupt supply chains. Economists worry that if business confidence is negatively impacted, corporations could delay significant investment decisions and cause a decline in manufacturing.
Wait, wait, let’s talk about it first. While Trump’s announcement created controversy, it appears to already be bearing results. According to Reuters, Mexican President Andres Manuel Lopez Obrador said Mexico could be ready to step up measures to contain migration in order to reach a deal with the United States. A Mexican delegation led by Foreign Minister Marcelo Ebrard is expected to meet with Secretary of State Mike Pompeo on Wednesday, June 5. According to Reuters, Mexico’s Economy Minister Graciela Marquez said on Sunday she would meet with U.S. Commerce Secretary Wilbur Ross in Washington on Monday, as the two governments begin holding talks to resolve the issue in the U.S. capitol in the coming week.
A guide to Trump’s tariffs: What they are, how they work and whom they’ll affect, The Washington Post, Taylor Telford, May 31, 2019.
New Sectors to Be Pulled Into Trade Fray, The Wall Street Journal, Josh Zumbrun, Anthony DeBarros, Anthony Harrup and Jeffrey Sparshott, June 1-2, 2019.
Trump’s Tariff Threat Sends Mexico, Lawmakers and Businesses Scrambling, Ana Swanson, New York Times, May 31, 2019.
Mexico: U.S.-Mexico Trade Facts, Office of the United States Trade Representative, 2019.
GOP senators warn Trump’s Mexico tariffs could blow up trade deal, Politico, Doug Palmer, May 31, 2019.
Mexico and U.S. gear up for tariff talks, Trump doubles down on threat, Sharay Angulo, Reuters, June 2, 2019.
Mexican president hints at migration concessions to defuse U.S. trade spat, Reuters, Dave Graham, June 1, 2019.
Mexico Tariff Threats Tied to Steep Demands, The Wall Street Journal, Louise Radnofsky in Washington and Juan Montes in Mexico City, June 1-2, 2019.