Foreign Speak : President Trump declares tariffs on Mexican goods
The President of the United States of America has just driven another nail into the country’s trade coffin.
In a tweet today, as most policy announcements are now made, President Trump stated that as of June 10, a 5% trade tariff will be imposed on all goods coming in to the US from Mexico. This tariff, he promises, will slowly rise “until the illegal immigration problem is remedied”. The terms of the tariff, as per Mr Trump’s tweet, are absolute - it will continue until such time as illegal immigration through Mexico reaches a complete stop.
This is in the context of a national emergency declared by him over a crisis of illegal immigration at the southern border that US shares with Mexico.
The dispute this year began in February, with the president’s request for $6.7 Billion to build his mammoth border wall, as a matter of national security. This request was declined by the US Congress, instead approving a $1.38 Billion budget for the construction of “primary pedestrian fencing” along the Rio Grande Valley in Texas. In light of the refusal by Congress to approve further funding, Mr. Trump declared a state of national emergency. The logic here was transparent - a declaration of national emergency allows for the release of $2.5 Billion from the United States Department of Defence, and $3.6 Billion from the military project construction budget; all which could be used to build the border wall that Trump promised throughout his presidential campaign.
On May 25, however, a US federal judge blocked the use of the funds from the department of defence to build this border wall. The president’s move to bypass Congress and use funds from the department of defence has been opposed by over 20 States, along with third party civil rights groups, most notably the American Civil Liberties Union. "The position that when Congress declines the executive's request to appropriate funds, the executive nonetheless may simply find a way to spend those funds 'without Congress' does not square with the fundamental separation of powers principles dating back to the earliest days of our Republic," Judge Haywood Gilliam said in his ruling. The 3200 kilometre border wall envisioned by Trump comes with an estimated total price tag of $23 Billion.
It doesn’t take much to make the connection between the need for federal funding for the wall, and a federal tariff imposed on goods from Mexico. However, the truly interesting impact of this announcement will be seen on the United States - Mexico - Canada Agreement (USMCA). The USMCA is still being negotiated, and the route to the ratification of this agreement is already fraught with disagreements. The trade deal that did have a chance of being passed by the Congress of the Union - Mexico’s legislature - will now most likely be stonewalled. This tariff announcement already seems to be extremely short sighted, especially considering the fact that Mexico is America’s third largest goods trading partner, having traded $265 Billion in goods exported from the US to Mexico in 2018 alone, according to the Office of the United States Trade Representative. Not only is it resulting in a loss of neighbourly goodwill in trade, it is also puts a large number of US exporters at risk. The New York Times reports that Rufus Yerxa, the president of the National Foreign Trade Council, which represents the nation’s largest exporters, called the move “a colossal blunder.” To further situate US trade relations, this tariff declaration has been made in the face of an ever escalating trade war between the US and China - a trade war that includes tariffs on over 194 Chinese products, where the price of the war falls squarely on consumers.
Now coming back to the tariff on Mexico - the Trump administration further expanded on the President’s tweet by stating that the new policy aims at ensuring Mexico works towards discouraging asylum seekers from approaching the United States. The 5% tax on Mexican imports will rise gradually to up to 25% unless the administration sees an actual crack down on illegal immigration. Now here’s the catch - what constitutes appropriate action by Mexico? What are the parameters by which the US will decide that Mexico has done enough to curb immigration? The way the tariff works seems clear on the face of it - all goods shipped from Mexico to the US will face an additional tax of 5% over and above any taxes already being paid. How does this affect the consumer? Any Mexican manufactured goods will now have proportionately raised prices in the US. This includes a wide variety of consumables, from fresh produce, to cars and trucks.
In what seems like a unilateral and arbitrary decision to impose tariffs on a neighbouring state, one must assume that in the absence of well thought out foreign economic and trade policy, there must exist an ulterior motive. It remains to be seen if this is Trump’s way of finally ensuring that Mexico does indeed pay for the wall.