Trump to Penalize Mexico with Tariffs Over Immigration

“Tariffs will permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory,” said Trump in his statement.

Mexican President Andrés Manuel López Obrador called for dialogue to resolve the situation rather than tariff retaliation but noted, “Please remember that I do not lack courage, that I am not cowardly or timorous but that I act on principle.”

By Sunday, there were signs that Mexico is willing to make some concessions to beef up border security but also has a “plan” to protect the country from economic hardship should the tariffs be imposed.

“The main thing is to inform about what we’re already doing on the migration issue, and if it’s necessary to reinforce these measures without violating human rights, we could be prepared to reach that deal,” Lopez Obrador said.

The lifting of Section 232 tariffs on aluminum and steel less than two weeks ago spurred a renewed push by the North American nations to ratify a new trade agreement. Just hours before the announcement, López Obrador had sent the agreement to the Senate for ratification. Passage of the treaty is now seriously compromised.

The president’s new tariff increases would “essentially blow up USMCA,” Rufus Yerxa, president of the National Foreign Trade Council, told the Washington Post. “The economic impact will be devastating on both sides of the border.”

Acting Trump administration Chief of Staff Mick Mulvaney tried to spin the tariff threat away from the USMCA, saying there would be no impact on the treaty. “These are not tariffs as part of a trade dispute. These are tariffs as part of an immigration problem,” said Mulvaney. “The USMCA is a trade matter and completely separate.”

Announcement Met with Alarm and Dismay

The tariff announcement sent shock waves across the global financial market and resulted in an immediate devaluing of the Mexican peso against the U.S. dollar.

Congressman, business groups and economists expressed alarm at the proposal.

Senator Charles Grassley (R-IA), chairman of the Senate Finance Committee, issued a statement saying, “Trade policy and border security are separate issues. This is a misuse of presidential tariff authority and counter to congressional intent.”  Grassley urged the president to consider other options, noting that following through with the tariffs “would seriously jeopardize passage of USMCA.”

“The president’s use of tax hikes on Americans as a tool to affect change in Mexican policy is misguided,” Pennsylvania Sen. Pat Toomey said in a statement. “It is past time for Congress to step up and reassert its constitutional responsibility on tariffs.”

An analysis by the U.S. Chamber of Commerce estimates that a 5 percent tariff on imported goods from Mexico would result in a potential tax increase for American businesses and consumers of $17 billion. In 2018, imports from Mexico totaled $346.5 billion. If the tariffs should reach the cap of 25 percent, the Chamber says, the bill for Americans will be more than $86 billion. Texas, Michigan, California, Illinois, Ohio and Arizona will be the hardest hit states by the proposed tariffs. Trade also supports 5 million American jobs, added the Chamber.

“Imposing tariffs on goods from Mexico is exactly the wrong move,” said Chamber executive vice president and chief policy officer Neil Bradly. “These tariffs will be paid by American families and businesses without doing a thing to solve the very real problems at the border. Instead, Congress and the president need to work together to address the serious problems at the border.”

The Chamber is considering a lawsuit against the White House regarding the tariffs. “We are exploring all options, including legal action,” the trade group confirmed.

National Association of Manufacturers President and CEO Jay Timmons said in a statement: “We continue to urge the administration and Congress to work together to address this crisis because the problem will not be solved just by blaming other countries. Intertwining difficult trade, tariff and immigration issues creates a Molotov cocktail of policy, and America’s manufacturing workers should not be forced to suffer because of the failure to fix our immigration system.

“These proposed tariffs would have devastating consequences on manufacturers in America and on American consumers. We have taken our concerns to the highest levels of the administration and strongly urge them to consider carefully the impact of this action on working families across this country. Manufacturers have been working hard to secure passage of the U.S.–Mexico–Canada Agreement, and the last thing we want to do is put that landmark deal—and the two million manufacturing jobs that depend on North American trade—in jeopardy.”

Coalition of American Metal Manufacturers and Users Executive Director Paul Nathanson said, “While our coalition’s focus is on the 232 tariffs, we are certainly opposed to placing these additional tariffs on Mexico. This will impact U.S. steel- and aluminum-using manufacturers, particularly those who supply to the auto industry. We are already seeing signs that our members’ large original equipment and Tier 1 customers with large supply chains are viewing the U.S. as no longer serving as a stable option to source products due to the zig zagging policy of tariffs and threats of tariffs. Tariffs are taxes on U.S. companies and put our manufacturing sector at a disadvantage with our overseas competitors.” 

“The growing tariff bill paid by U.S. businesses and consumers is adding up and will raise the cost of living for American families,” the National Retail Federation said in a statement. “Forcing Americans to pay more for produce, electronics, auto parts and clothes isn’t the answer to the nation’s immigration challenges, and this certainly won’t help move USMCA forward.”

One of the hardest hit industries will be automotive, which relies on cross border supply chains to produce its vehicles.

The Alliance of Automobile Manufacturers, representing 70 percent of all cars and trucks sold in the U.S., highlighted the importance of trade with Mexico. Said Alliance Interim President and CEO David Schwietert: “Our position on tariffs remains unchanged: They are a tax on our customers, which means they’re harmful to our nation’s economy and the millions of American jobs that depend on cross-border trade.

“The auto sector – and the 10 million American jobs it supports – relies upon the North American supply chain and cross border commerce to remain globally competitive. This is especially true with auto parts, which can cross the U.S. border multiple times before final assembly. Any barrier to the flow of commerce across the U.S.-Mexico border will have a cascading effect – harming U.S. consumers, threatening American jobs and investment, curtailing the economic progress that the administration is working to reignite, and potentially stalling efforts to ratify the agreement in Mexico, Canada, and the U.S. Congress.”

Tariffs Add to Distrust of U.S. Administration

The tariffs may have unintended consequences for establishing treaties with China and other nations.

“We view this action as further deteriorating the U.S.-China trade fight. Chinese officials have stated their concern about the reliability of President Trump as a trading partner. These tariffs were announced the same day as significant advancement of the USMCA. If China does not believe a deal will stick, why negotiate?” said Ed Mills, public policy analyst at Raymond James in a note.

“How can you trust Trump to honor a deal?” said Cowen analyst Chris Kruege. “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.”

“It’s hard to imagine every single country in the world is not paying attention to this,” said Jorge Guajardo, Mexico’s former ambassador to China and a former consul general of Mexico to the United States. The USMCA “was an example of how to reach an agreement with the United States, and it’s just been undone over something that has nothing to do with trade.”

“Statue of Liberty is Not an Empty Symbol”

Mexico’s president tried to persuade Trump to adhere to a higher moral calling. In a letter to Trump, López Obrador wrote:

“Social problems are not resolved by taxes or coercive measures. How do you transform the country of fraternity for the world’s migrants into a ghetto, a closed space, where migrants are stigmatized, mistreated, persecuted, expelled and the right for justice is canceled to those who tirelessly seek to live free of misery? The Statue of Liberty is not an empty symbol.”

He added, “The slogan “America First” is a fallacy because until the end of time, even over national borders, universal justice and fraternity will prevail.”