Breaking Down the Latest Trump Mexico Trade War

By now most, if not all of you, know that Donald Trump has threatened a tariff war with México by announcing he plans on imposing a five percent tariff on Mexican goods entering the United States starting next Monday. Trump has threatened to increase the punitive tariffs up to 25% if he does not get México to do something about the migrant caravans reaching the United States. This latest Trump outburst raises a few questions that need to be answered.

Why now?

The first obvious question, is why now? The United States is in the middle of a trade war with China. Already the US government has had to bail out farmers to sustain them until the Chinese impasse is resolved. Adding México to the trade debacle will increase pressure on the farming sector and put the automotive and other sections of the American economy under pressure.

Donald Trump argues that México needs to help the U.S. with the migrant surges at the border. Until the Mexican government agrees to help, Trump wants to punish México with tariffs.

On the surface it looks simple enough, México must help America with the migrants. But not all is what it seems like.

The punitive tariffs are part of America’s long-standing doctrine of solving foreign policy problems outside of America. Case in point is the Drug War. The United States would rather fight drug cartels in far off places rather than on the American neighborhoods. The Cold War was fought across the globe to keep Americans from having to deal with a Soviet presence in America.

But the long-standing doctrine is only part of the reason. The most important reason is that Donald Trump is under threat. Trump is facing rising cries of impeachment, which he fears as evidenced by calling the word, “impeachment” a “dirty, filthy, disgusting word.”

Donald Trump is also under pressure from his base as he has yet to keep any of his political promises that are important to his die-hard base. The “wall” is again stymied at the judiciary because Trump is trying to bypass Congress. Trump promised his diehards that there would be no more “catch and release” of migrants in the country. He has failed to do so. He is on track to, or has even surpassed, releasing more migrants into the country than any other administration.

The 2020 elections are on the horizon and Donald Trump is feeling the pressure. The punitive tariffs on México serves both to distract Americans and to try to solve the migrant surges.

However, there are many reasons why this gambit will likely fail.

What about the USMCA?

Another promise that Donald Trump made to his base was withdrawing the US from NAFTA, which he has said is the “worst deal” ever. Unfortunately, the biggest supporters for trade with México and NAFTA, or a NAFTA replacement, are the Republicans. States like Texas depend on trade with México.

The USMCA was threatened prior to the latest trade war because the Democrats neither want to give Trump a win nor is their labor base enthusiastic of any trade deal that forces American workers to compete with lower salaries. On the other hand, the Mexican government is focused internally and as long as NAFTA is in force, it is in no rush to adopt the USMCA.

Trump’s tariff war on México has not only put the US economy in jeopardy but it has pushed the NAFTA replacement, the USMCA, further into the possibility of not being adopted by anyone.

Donald Trump cannot rid himself of NAFTA, although he may believe so because states like Texas would suffer tremendous economic consequences. The Republicans would likely rebel further threats on trade.

While China and the US are in a trade war, Donald Trump cannot sustain another one with México because the Republicans would not stand idly by and see their constituencies suffer economically. The farmers, a core Trump constituency, are already reeling under the Chinese trade war. They will suffer even more by a México trade war. Add to that the automotive sector and other economies like appliances and the US consumers will also suffer directly.

Why pays?

All tariffs are paid for by US taxpayers in the form of the unavailability of consumables or higher prices, not withstanding Trump’s arguments that Americans don’t pay the tariffs. A tariff is a tax.

Imposing extraterritorial will.

The imposition of punitive tariffs on México to force the Mexican government to help with the migrant issue is unprecedented. First, the US government has never used tariffs for impose its national will on other countries, especially with a country it has such an extensive intertwined trade with – such as México. Although the United States has used embargoes and even blockades to impose its will, those have been seen for what they are – antagonistic.

What Donald Trump is arguing with the tariff threats is that México must act as a surrogate to America’s foreign policy. Trump wants México to do America’s bidding.

An analogous example would be if México imposed punitive tariffs on American exports to México until the United States stopped the guns from America going into México. The American guns feed the extreme violence that many Mexicans live each day. Americans would be understandably angry that México would date to impose its will on American domestic policies.

What will AMLO do?

The question is what will Andrés Manuel López Obrador, or AMLO do in response. AMLO has been focused on inward looking domestic issues and has ignored foreign policy to focus on his domestic agenda. AMLO has taken the stance that as long as he does not antagonize Trump, Trump will leave México relatively unscathed.

This worked for a while. AMLO increased the deportation of Central American migrants to pacify Donald Trump. AMLO even accepted the “remain in Mexico” plan that his predecessor negotiated. AMLO thought that was enough. But Donald Trump is lashing out as more pressure is applied to him by his opponents in the US.

AMLO’s first response to Trump’s latest gambit is to try to appease Trump with arguments of negotiating an agreement to the migrant issue. AMLO does not want to deal with extraterritorial issues and would rather focus on domestic problems. AMLO may be willing to offer Donald Trump token appeasement solutions by ramping up migrant round ups and may even further fortify the southern border even more under the guise that México must respond to an unprecedented human crisis.

But AMLO is limited on what he can offer Trump because of México’s traditional immigrant history and support for dialog to solving problems. AMLO needs a political coalition to implement his domestic policies.

AMLO and his political coalition cannot afford to focus on foreign issues at the cost of his domestic agenda. Any threat to México’s economy directly affects AMLO’s ability to deliver on his national policy. If AMLO is seen as capitulating México’s sovereignty, although he is likely tempted to do so, his tenuous political support will weaken further, eroding his ability to deliver on his domestic platform.

AMLO will likely do his best to deliver on his domestic policies by appeasing Trump without looking like he has capitulated completely to him.

The dangers of Donald Trump’s latest gambit.

How AMLO reacts to Trump’s latest provocation is still up for debate. However, if Donald Trump can use tariffs as punitive tools for US foreign policy agendas other countries will take note. This is because it will set a dangerous precedent for international trade. No trading partner wants to believe that if they do not toe America’s foreign policy agenda that they can be punished through trade.

This opens the door for China to step in and offer America’s trading partners an alternative, albeit smaller but without America’s capriciousness. It could also lead to the erosion of a global economy and turn many countries into isolated regional or internal economies.

The Republicans for their part will not stand idly by as America’s economy begins to contract as countries begin to protect themselves by isolating their economies from American goods. China is already retaliating. AMLO may be forced to do the same. As the US economy suffers the repercussions expect the Republicans to step in.

The next week will be very telling as to what the future under Donald Trump will be like, both domestically and internationally.

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