Why you should care
Because this move could cost consumers $87 billion.
You may think of tariffs as financial policies you were forced to learn about in high school. (Bueller?) But to President Donald Trump, they’re cruise missiles and Reaper drones, critical weapons for getting what he wants from the rest of the world.
Calling himself “Tariff Man” — in a possible bid for his own Marvel spinoff — the president has slapped tariffs on goods from China, the European Union and Canada, and weathered retaliation from those countries. The point is to protect key U.S. industries and, in the case of China, to discourage bad behavior such as forced transfer of technology and theft of intellectual property. So far they’ve been largely targeted on critical industries such as steel and aluminum.
This week, though, Tariff Man went big. Trump tweeted that on June 10, he will impose a 5 percent tariff on everything from Mexico. That figure will continue to rise to 25 percent by October.
On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,..— Donald J. Trump (@realDonaldTrump) May 30, 2019
Trump contends that it will take inflicting economic pain on Mexico to stop the flow of migrants at the border. Just like with declaring a national emergency to shift Pentagon money to build a border wall, he’s going to extraordinary legal lengths to accomplish his aims. The International Emergency Economic Powers Act gives the president broad leeway to take economic actions as a result of an emergency but has never before been used to impose tariffs.
Trump has also issued a vague condition for ending the tariffs: “the illegal immigration problem is remedied.”
Evidently, Trump is sick of seeing asylum seekers continuing to arrive at the border no matter what get-tough measures and rhetoric he has tried through two and a half years in office. It’s his signature issue, and it’s not getting better on the ground, so Trump is reaching for his favorite missile. But it may backfire.
A 25 percent tariff would amount to an effective tax of $87 billion on the $346 billion in goods the U.S. imported from Mexico last year, as importers would pay the tariffs and almost certainly pass along the costs to consumers. We’re talking about much more than pricier avocados and tequila. A Deutsche Bank analyst said the average price of vehicles sold in the U.S. would rise $1,300, given the auto industry’s reliance on an integrated supply chain with Mexico.
As OZY’s Deborah Bonello has reported, Mexico is dealing with its own child migrant crisis with Central Americans arriving on its southern border. President Andrés Manuel López Obrador is not adopting Trump’s family separations approach, but he’s similarly frustrated by the growing crisis. It’s not as if Obrador can simply turn off the spigot and make this problem go away at the Rio Grande.
At the moment, the left-wing populist is trying to mollify Trump rather than make things worse. “There is no need for confrontation,” Obrador said Friday. This coming week will see high-level negotiations in Washington, D.C., in an attempt to head off the tariff threat.
Meanwhile, the Trump administration is trying to push its new free trade deal with Canada and Mexico through a skeptical Congress, and the stock market plunged from the new jolt of uncertainty.
Trump intends to make the strong economy a pillar of his 2020 campaign, but most economists warn that tariffs are self-defeating. And yet, always spoiling for a fight, Trump sees one he can win with Obrador. At least immigration is more politically friendly turf than Robert Mueller’s first public comments about his investigation Wednesday, which only increased the momentum toward impeachment.
The Democratic presidential candidates have made some bumbling attempts to apply a nickname to Trump, as he’s done to so many of them. “We could just start with clown,” Joe Biden said a couple of weeks ago. New York City Mayor Bill de Blasio tried “Con Don,” in a sad plea for attention.
But if this Mexican standoff seriously hurts consumers, the most stinging moniker may end up being one of Trump’s own creation. So what’s the plan, Tariff Man?