President Trump promised “a big league statement … my biggest statement so far” on Friday regarding updates to his policy on the U.S.-Mexico border. Rather than announce a humane update to the treatment of the surge of migrants at the southern border in the past few months, or an update to the NAFTA-replacement making its way through Congress, the president opened up a second front in his trade war by picking a tariff fight with Mexico.
On Thursday night, Trump previewed the announcement on Twitter:
According to a report from the Washington Post, White House aides were hoping to talk the tariff man out of his tariff plan — though, according to the tweet, that moment has passed. “Such a threat would rattle financial markets and potentially imperil passage” of the NAFTA replacement, according to officials who spoke to the Post.
Trump’s proposed round of tariffs come as the trade war with China grows to a size that it could begin to seriously impact the American economy. As New York’s Josh Barro asserts, China tariffs could soon be five times as large as they were in 2018, and the newest proposed expansion of the trade war would “cut U.S. economic outpoint by one-half to one percentage point, compared to a counterfactual where the U.S. and China had maintained their pre-Trump trade policies.” That dip, on its own, won’t push the economy into recession. But it’s still dangerous:
It would constitute a significant slowdown, which would likely result over time in slower job growth and weaker wage growth, not to mention slower growth in corporate profits.And [former Treasury Department economist] Ernie Tedeschi notes there could be a snowball effect: If the expectation of a trade-related slowdown in growth encourages corporations to cut their capital expenditures, that could lead to reductions in domestic demand.
A volley of tariffs aimed at Mexico could further shake up financial markets, considering that the country was the largest trading partner of the U.S. in the first two months of the year — in part owing to the trade disputes with China. The tariffs, if enacted in June, also send extremely mixed signals to Mexico: The United States–Mexico–Canada Agreement replacing NAFTA was designed to limit tariffs and trade barriers among the three countries. Two weeks ago, to help ensure the deal’s ratification, Trump even lifted tariffs on steel and aluminum coming from Canada and Mexico. A Mexican official told the Post that up until this point, negotiations have remained “positive.” But the 5 percent tariff on all goods entering the United States through the southern border has the potential to stymie the deal’s passage in Mexico’s Congress.
The president’s tariff seems to rely on the logic that a Mexican crackdown on undocumented migrants would simply outsource the American immigration crisis. But the Mexican immigration system is backed up, too: Around 55,000 migrants are expected to apply for asylum in the country by the end of the year, which is almost double last year’s number. For Trump to assume that a broad tariff would solve a multilateral problem caused by economic and climate crises in Central America is not a surprise: It is a simplistic and ineffective stab at crisis management, the economic equivalent of a border wall.
