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?

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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?

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

  1. Surely you’re not suggesting Trump was lying or letting a half-formed thought that just popped into his head escape his mouth like an old lady farting in church, are you? That’s so totally un-Trumpian of him!

    1. All in all he’s just another prick with no wall.

  2. I have been told that Trump means what he says, so there’s that. Maybe he means what he says, but then can just change his mind over and over again, no problem?

    1. The energy required to flip the states of 3 neurons is rather low, so there’s that…

  3. >>>who knows how much political damage he’s already done?

    you seem to have the scorecard.

  4. 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.

    Poor Boehm. He is worried about trade agreements not ratified by the Senate.

  5. Here is Boehm’s evolution of arguments on trade in the Trump Era:

    -Trump has no authority to re-negotiate trade deals.
    -Trade deals are fine, Trump should not renegotiate trade deals.
    -Congress should stop Trump from overstepping his Executive discretion based on law passed by Congress.
    -Senate supports Trump’s strategy.
    -Trump has no authority to apply tariffs.
    -Old tariffs are fine but new Tariffs are BAD.
    -Congress should stop Trump from overstepping his Executive discretion based on law passed by Congress.
    -Senate supports Trump’s strategy.
    -Trump makes trade deal with Mexico and Canada and that is no good.
    -Congress should not ratify USCMA because TRUMP!
    -Trump makes deal with Mexico and then should not renegotiate it because Mexicans will not cooperate with him anymore.

    1. Shorter; Tarrifs are a tax on the residents of the US and unlikely to achieve any of Trumps goals…..if he actually has any, which he doesn’t.

      1. Everything you just said is bullshit.

  6. Hasn’t Mexico actually stopped migrants from crossing the Southern border today?

    Seems the tariff threat worked.

    1. Yes, I’m reading reports that the Mexicans busted a number of Guatemalans coming across their southern border. I hope Trump understands that Mexico has even less control over its southern border than we have control of ours.

      1. The sensible thing would be for us to help Mexico secure their southern border.

        Win-win.

        1. Mexicans letting American military patrol their borders from within their borders would be about as popular as letting the Mexican military patrol the streets of Chicago.

          1. So, an agreement was reached.

            I’m stunned Reason was wrong on this.

            STUNNED.

  7. Trumpistas have dragged their knuckles and grunted out their support to Der TrumpfenFuhrer, for throwing them some tattered old scraps of red meat, with hints of more to follow! Even if all that follows is mere “pink slime”, ooops, I mean, “finely textured beef products”, the trumpistas are guaranteed to be lusting for more of the same!

    So yes, the tariff threats are working as intended!

    1. Oh fuck you you dumb cunt. As if you have two neurons to rub together. You inflict us with your inane ramblings on a regular basis, yet you don’t know a goddamn thing adult anything at all.

      Drooling idiot. The dumbest Trump supporter has ten times your brain power.

  8. We can’t really judge Trump’s performance at this point without looking at his intentions, and, given the available evidence, some of Trump’s demands might be reasonable.

    “The U.S. has called on Mexico to block more migrants at its southern border with Guatemala; to step up efforts against organized smuggling; and to designate itself a “safe third country,” which would mean people entering Mexico from Guatemala, Honduras and El Salvador wouldn’t be eligible to claim asylum in the U.S.”

    https://www.wsj.com/articles/trump-pressures-mexico-as-second-day-of-border-talks-begin-11559826586

    If Trump forces Mexico to proclaim itself a “safe third country” and, hence, that means central Americans are no longer eligible for asylum if they travel through Mexico, that will be of real benefit to the United States.

    I might add that this policy wasn’t about to be addressed by the Congress. I think Homeland Security really is being overwhelmed by families of asylum seekers, I think the Democrats in the House are fully aware of that, and I think their refusal to do anything on policy to help alleviate that problem is partially what’s driving Trump’s hand, here. I don’t approve of using trade policy this way, I’d hate for anyone to think I wasn’t being fair to Trump (or his supporters) on this.

    An honest assessment of Trump’s position, here, is that Homeland Security is in crisis mode, and the Democrat House sees Trump twisting in the wind over children dying and other immigration issues as a good thing in an election year. I don’t blame Trump for not wanting to be their obedient whipping boy when the Democrats are selling the interests of asylum seekers and U.S. interests short in an election year. And my honest criticism of his using trade policy this way needs to acknowledge that.

    As I say so often, I hope that I’m wrong and that Trump is wildly successful in his efforts. If he manages to end the asylum seeker crisis on our southern border without hitting Mexico with tariffs, he’ll have done a great thing for the United States over my objections–and he’ll deserve credit for showing that kind of leadership.

  9. Leadership is a funny word to use in describing Donald Trump.

    I am very close to open border type. I agree that our system is overwhelmed mostly because of the societal collapse in parts of Central America. There are humanitarian issues not resolved by steel walls.

    Tariffs by decree is not leadership. A leader inspires a team to achieve a goal. Trump is not a team guy. “I alone can fix this”

    1. Agreed, well put!

      “Let there be tariffs and walls!” (Problems solved; what’s next?)

    2. When I used the word “leadership” in that situation, I was referring to the ability to make a tough call over the objections of other people because you think you’re right–and then being right.

      You get credit for that.

      One time they came to me and said, “Ken, you’re a great guy. A smart guy, even! But this time things are different. You’re passing on deals that we should have done. We’re not sure you’re the right guy to be putting these deals together anymore.”

      There was a year there in 2007 where the market was so frothy, I only did one deal and passed on a whole slew of others. I asked them which deals they were talking about. It turned out that one of our important investors had backed a number of deals that I’d rejected on the basis of an analysis of the submarket.

      I walked them through each of those deals, and why I’m glad we didn’t do them, but that was before the floor fell out of the market. That investor was hurt so badly by the deals he rejected, that he didn’t have the heft to back our construction loan anymore on the one deal I did. The one deal I did was so good, everybody decided to stay in it–despite the floor falling out of the market. Hell, they were glad to see costs drop!

      I wasn’t the only guy in commercial real estate to feel pressured to do bad deals circa 2007 and 2008, and you’d think you should get some credit for that kind of “leadership”, when you stand up against all pressure to the contrary, make an unpopular call, stand behind it, and then be vindicated by the performance. The funny thing is that almost no one gives you credit for that. Everything is 20/20 in retrospect, and you were always supposed to be able to see the future. I remember, and I keep track of those people who deserve credit for that kind of leadership.

      IF IF IF Trump is right about this and he manages to make it so that Central Americans no longer have a legal basis or a reason to flood our southern border with false asylum claims–over the objections of everyone and without ever having to impose a new tariff–then he’ll deserve some credit for that. Sometimes, people are right for the wrong reasons, but if he proves to be right for the right reasons, then he’ll deserve credit from me for being right when I was wrong.

    3. One more thing.

      We are talking on D-day.

      There was a Captain James Martin Stagg. A British weatherman. He advised putting off the invasion one more day. It went all the way up to Eisenhower who did postpone the invasion on the advice of some Scottish captain who read the tides, surface pressures, and clouds.

      The rest is history.

      1. Yeah, but was he a “true Scotsman”?

        1. Yes he was.

          Born there and educated at Edinburgh.

  10. I don’t know that Trump cares more about the national jobs number than he does in specific areas like the swing state Midwest, but one of the things I’d be looking at if I were Trump is the BLS employment report that’s scheduled to come out tomorrow at 8:30 am EST.

    Yesterday, the Q1 productivity report (non-farm) showed a whopping 3.4% annualized increase and unit labor costs decreasing by 1.6%. That latter number is about how much it costs employers to get the same amount of production. Rising standards of living are typically associated with productivity gains. When each employee is more productive, employers can afford to pay them more. So, as labor costs drop (relative to output), that means employers have even more reason to hire more, pay more, etc. Productivity is also a brake on inflation. German workers are among the best paid in the world because they’re among the most productive in the world relative to output.

    https://www.bls.gov/news.release/prod2.nr0.htm

    Point being, if the May employment figures that come out tomorrow morning confirm that companies are still hiring despite Trump’s trade war escalation, then Trump has little reason to back off his trade war stance–at least as far as his reelection campaign is concerned. In fact, if he can preside over an economy where unemployment keeps dropping, productivity keeps rising, and wages keep rising as well–all while the the news media maintains a narrative about how awful he is for keeping the pressure on China–then Trump’s chances of being reelected will just keep getting better. Who cares what the media says?

    If Mexico won’t capitulate, then Trump may have little reason to call off the dogs. He may not have given them until Monday for no reason. He may be looking to the BLS to see which way the wind blows. That’s what Wall Street is doing, and what does the news media know that the markets don’t know?

  11. We all already know that Trump has the Economic Understanding of a Two year old where National and World issues are concerned. He tries to run things as a Mob Boss – that simply won’t work. What he risks is the countries he is trying to bully getting together and taking the USA out of the loop. The world can and will spin on without us if it needs to do so. But once it gets in the habit of doing so, we will NEVER get back what we had. One change to something as a simple as a change to the preferred currency list would do it.

    We have to get that idiot out of the White House and do it now. McConnel needs to go at the same time – he is an obstructionist and has lost all sense of how to work with people to a common good. As long as Trump holds M’s wife hostage, we will never get a balanced response from the Senate. M will block every common sense bill that Trump dislikes. I’ve read the Mueller report cover to cover (the one without commentary) it is clear that there is more than enough to put Trump into an Orange jumpsuit. It is time to take action before our Economic lives are destroyed by a child playing with dangerous toys.

    1. Raclapp, I agree with your vision! Orange Hitler in an orange jumpsuit sounds VERY appealing to me! (Not in a sex-porn sorta vogue; far more so in a justice-porn kinda way).

      But I know that justice porn is usually a fantasy… How much justice do you want? How much money and power do you have? Trump has FAR too much of both of the latter, so he is very unlikely so see REAL justice meted out to him…

  12. Mexico capitulate.

    How much space has the government of Mexico to capitulate?

    Like there are trillions there they are holding back. Vast resources.

  13. We already collect tariffs at all the border ports from goods transshipped through Mexico and through Canada, so the “bureaucracy” is already in place, as far as cargo is concerned it’s going to be a few tables updated in a database to implement.

  14. So, when are they going to change Boehm’s byline to “Eric Boehm is Wrong Again”.

    Because dayum.

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