Free Trade

Trump's Threatened Tariffs on Mexican Imports Might Not Happen. They Have Costs Anyway.

The president still has time to avoid the economic damage, but who knows how much political damage he's already done?


New tariffs on all goods imported from Mexico are supposed to start on Monday—but even if they don't end up happening, some damage has already been done.

In a tweet last week, President Donald Trump abruptly announced plans to slap 5 percent tariffs on all Mexican imports starting on June 10. The White House followed up with a plan to hike those tariffs monthly, up to a maximum of 25 percent, if Mexico fails to adopt the immigration policies Trump would prefer. Even at the lowest level, those tariffs would amount to an $87 billion tax increase on Americans and could cost thousands of jobs. At the highest level, they would be one of the largest tax increases in decades and would jeopardize more than $600 billion in cross-border trade, with agriculture and manufacturing sectors hit particularly hard.

There are reasons to be skeptical that the tariffs with actually materialize. Peter Navarro, one of Trump's top trade advisors, said Wednesday that the new taxes may not be necessary "because we have the Mexicans' attention." Even if the White House does push ahead with the trade barriers, Trump may lack the legal authority to impose them as part of a national security declaration. If he tries, Congress could act to block them.

More practically, there is still no formal guidance from the Trump administration telling U.S. customs officials to collect those tariffs. After decades of mostly tariff-free trade between the U.S. and Mexico, there are good questions about whether border checkpoints have the logistical capabilities to start collecting tariffs in a matter of days. A presidential tweet can't magically create the vast bureaucracy necessary to collect taxes on $1 billion in daily imports from Mexico.

"So, if the tariffs are applied on Monday, expect a mess," tweets John Murphy, senior vice president for international policy at the U.S. Chamber of Commerce.

If the tariffs don't happen—for any of these reasons, or simply because Trump changes his mind—that might seem like a victory for free trade. Certainly, it's better than the alternative. But Trump's threats have already done damage in ways that might not be immediately obvious.

"The overall problem here is one of U.S. credibility going forward," says Clark Packard, trade policy counsel at the R Street Institute, a free market think tank. "Why would other countries want to negotiate with us after the president pulls this stunt right as his administration is pressing Congress and Canada and Mexico to move forward with [the United States–Mexico–Canada Agreement]? Totally self-defeating."

Indeed, it's impossible to separate the new tariff threats against Mexico from the Trump administration's claim that it has been using tariffs to negotiate better trade deals for the United States. The first of those new trade deals to emerge is the United States-Mexico-Canada Agreement (USMCA), which has yet to pass Congress.

"He's already injected the idea that he could move to slap them on at any time, never mind USMCA, and for any reason," tweets Politico and CNBC correspondent Ben White on Wednesday. "That has its own impact on confidence and decision making."

You can add all that to the list of unseen costs of the Trump trade war. As I detailed in a Reason feature earlier this week, we may never know the trade war's true cost in terms of lost opportunities and unmade investments.

If Trump is going to sign a trade deal with Mexico and then immediately threaten to hit Mexican imports with tariffs over completely unrelated issues, what incentive does China or Europe have to reach a deal with him? The president still has time to avoid the economic damage that would be caused by these new Mexican tariffs, but who knows how much political damage he's already done?