Trump's Claim That Mexico Will Buy More American Agricultural Goods Is Fake News
And it reveals the major blind spot in Trump's view of how international trade works.
First things first: President Donald Trump's decision to back away from his threats to impose tariffs on goods imported from Mexico is a unambiguous victory for the American economy, for the hundreds of thousands of people whose jobs are part of that international supply chain, and for continued good relations between two deeply interconnected countries. Trump did the right thing, even if "the right thing" in this instance was simply backing down from doing the wrong thing.
But in typical Trump fashion, it apparently wasn't enough to announce over the weekend that Americans wouldn't be subject to a new $87 billion tax increase come Monday morning. Instead, Trump mashed all-caps for a tweet that bizarrely claimed Mexico had agreed to purchase more American agricultural goods in exchange for Trump revoking the tariff threat:
MEXICO HAS AGREED TO IMMEDIATELY BEGIN BUYING LARGE QUANTITIES OF AGRICULTURAL PRODUCT FROM OUR GREAT PATRIOT FARMERS!
— Donald J. Trump (@realDonaldTrump) June 8, 2019
Remember, Trump threatened to hit Mexican imports with tariffs because he was unhappy with how the Mexican government was handling the influx of Central American refugees crossing Mexico to seek asylum in the United States. That a supposed national emergency regarding immigration across the southern border could be solved by Mexico buying more American farm goods is…well, rather odd.
Even more odd: There is nothing in the agreement between the U.S. and Mexico about agricultural goods. You can read it here; it's only about two pages long. Mexican officials have told Bloomberg that there was no discussion of agricultural issues during the tariff talks, which focused on re-separating immigration policy and trade policy—two issues that Trump unexpectedly slammed together two weeks ago.
As the story unraveled on Sunday, Trump followed up with subsequent tweets suggesting that the agricultural deal was a secret part of the agreement to be revealed at a later date. That would be highly unusual. He also whined about not getting enough credit.
In a speech this morning, Mexican Foreign Minister Marcelo Ebrard confirmed that the two nations had not reached an agriculture agreement.
Not that we need one! Mexico is already the second largest buyer of American farm goods, behind Canada. More than 14 percent of U.S. farm goods already end up in Mexico, with purchases expected to top $19 billion this year, according to the U.S. Department of Agriculture.
But Trump's misleading tweets are more than just a bizarre aside to the tariff craziness of the past two weeks. They reveal the president's biggest blind spot when it comes to understanding how trade works.
Trump doesn't seem to understand that American goods are not nationalized commodities for him to buy and sell around the world. The federal government measures how much is imported from and exported to various countries, but that's not the same as actually conducting those transactions. That may seem obvious to you, but the distinction continues to evade the president.
When "the United States" sells farm goods "to Mexico," what's really happening is a chain of private transactions. Farmers sell their products to wholesalers who sell to export brokers who sell to Mexican importers who sell to their own supply chains on the other side of the border. About the only role that the national governments of the United States and Mexico play is determining how difficult it will be to get a box of tomatoes or a bushel of corn across the border itself.
In other words, even if Mexican trade officials wanted to agree to buy more American farm goods to appease Trump, that's not something they could agree to do. Individuals and businesses on both sides do the buying and selling, privately. Mexico can't force consumers to buy American products any more so than Trump can force American farmers to sell their goods to Mexico. The complexities of those supply chains cannot be organized and controlled by central planners—or at least, they really ought not to be.
Given those realities, the best thing the Trump administration can do to boost the exporting of American farm goods to Mexico is stay out of the way. Trump may have stumbled onto that answer this time, but there's no sign he's learned the broader lesson.