President Trump’s surprising announcement that starting June 10 America will impose a 5% tariff on imports from Mexico has heightened tensions not only on our Southern border but also caused global turbulence.
Since taking office, the president has sought to force trade concessions from Mexico, Canada, China and Europe. To date, none of these conflicts have been resolved. Barclay’s economists in a research note said: “We think trade tensions could escalate further before they de-escalate.”
In 2018 we imported more than $345 billion in goods from Mexico and exported some $265 billion.
Trump’s Twitter bombshell revealed his reasoning: If Mexico did not stop illegal aliens from entering our country, he would impose a 5% tariff on Mexican imports on June 10, and ratchet it up to 25% by October.
We are now engaged in a tariff cold war with both China and Mexico, our largest trading partners. On Friday, as a direct consequence of the president’s threats, the stock market declined more than 1%. Overall, the market declined 6.6% in May.
Let me give the rationale for the stock market’s decline.
If American importers do not pass on the tariff costs, they will incur lower profits. Alternatively, the tariffs could be inflationary because it raises the prices on a wide assortment of goods from fresh fruits and vegetables to automobiles.
Unless we resolve our trade dispute with Mexico, the imposition of tariffs on their imports could force companies to reconsider the continent-spanning supply chains that made North America one of the world’s most interconnected economies.
These are just some of the products that Mexico exports: Pacemakers, artificial respirators, televisions, computers, and cameras.
Mexico and America have interdependence with respect to oil and gas. We import crude oil, 700,000 barrels daily, from Mexico, and then we sell refined gasoline back to them. Alternatively, Mexico buys more than a million barrels of American petroleum daily.
We export up to 5 billion cubic feet of American natural gas a day to Mexico. Because America has a gas surplus, our potential inability to sell gas to Mexico will depress gas prices substantially.
If our relationship with Mexico deteriorates, the automobile industry will suffer terribly. Automakers ship parts and components back and forth between our respective nations many times. Kristin Dziczek, vice president for the industry, hit the bull’s eye when he said: “It is safe to say that in terms of auto manufacturing, the U.S. and Mexico are not trading with each other so much as they are building the same products together.”
Until Thursday, business executives assumed that they could transfer their manufacturing source from China to Mexico. Now, executives are paralyzed because they fear no place outside the United States is safe.
We need to recognize explicitly that America has benefited on balance from globalization. While much of our manufacturing hub has been hollowed out (eliminating millions of high-paying blue-collar jobs), our consumers have immensely benefited from lower prices. Most industrial experts question Trump’s assertions that America can recapture our historical manufacturing presence. Instead, we have expanded into lower-paying service industries.
Trump’s decision to impose tariffs on Mexico has drawn criticism from his traditional supporters. Republican Senate Finance Chairman Charles Grassley expressed his concerns about (1) its negative impact on our agricultural industry and (2) misuse of presidential powers to impose tariffs under the Emergency Powers Act.
Even Trump’s top economic advisers, Robert Lighthizer and Stephen Mnuchin, oppose Trump’s tariffs on Mexico. They warned him that his move could jeopardize USMCA, the new trade agreement with Mexico and Canada that replaced the 1994 North American Free Trade Agreement. The U.S. Chamber of Commerce, the nation’s largest business group, said they were exploring grounds for which they might mount a legal challenge.
Trump’s tariff on Mexico might be unconstitutional. The Supreme Court ruled in Youngstown Sheet & Tube v. Sawyer against Truman’s seizure of our steel mills during the Korean War. The imposition of tariffs based solely on immigration disputes raises the specter of a legitimate legal challenge.
Originally published in the Sarasota Herald-Tribune
