Mexico To China, Trump's Tariff Bullying Is Bound To Backfire
President Donald Trump's threat to raise tariffs against Mexico over immigration is political blackmail, and potentially makes nonsense of any trading deal with the U.S.
SANTIAGO — An enormous mistake and a piece of thuggery: that is what Donald Trump did in his most recent edict-by-tweet.
The American President said he would slap a 5% tariff on all Mexican products this month, and could raise them to 25% unless Mexico works to stop the flow of illegal migrants crossing the southern border of the United States. This aggression targets Washington's main trading partner, to which it sent in 2018 a total of over $346 billion's worth of goods including food, car parts and final products that are the last stage of an intricate value chain linking both countries.
Mexican business leader Gustavo de Hoyos Walther warned: "It would mean turning the two countries' relations back 35 to 40 years."
The collateral effect was immediately seen in Japan, a key U.S. ally, with a drop in the shares of Japanese carmakers with plants in Mexico and selling to the U.S. market. Trump cared little for the fact that the new North American free-trade accord, which he promoted and signed, is being debated in the congresses of both the U.S. and Mexico. The tariffs would make this new treaty irrelevant.
Trump has already shown his willingness to use tariffs as a stick with dismal returns, and his erratic actions in this sense mean any and all trading partners can no longer trust him. We remember the unilateral rise in tariffs a few months back on aluminum and steel from across the world, not to mention the 10% tariffs being raised to 25% on $200 billion's worth of goods that China annually exports to the United States.
The interdependence of economies is more subtle than that.
In China's case, at least it deals with proper issues of trade and competition in technology. Certainly, China steals or makes improper use of intellectual property from the rest of the world, and manipulates exchange rates to favor its exports. But a unilateral rise in tariffs is not the way to tackle such a situation.
Trump seems to see only the comparative figures when it comes to trade. Deficit is bad, surplus is good. Yet the interdependence of economies is more subtle than that today, and the United States' hegemony is based in part on the ability of its firms to have seats across the planet, and suppliers worldwide.
By unilaterally raising tariffs, Trump has caused a similar reaction in those countries affected. China has slapped tariffs on $60 billion's worth of U.S. goods, and all those working in trade issues know how difficult it is to agree on reducing them. Free trade makes products and services cheaper worldwide, but in each country there are sectors that seek protection and subsidies.
The World Trade Organization has been working for decades to bring tariffs down to the levels we see today, and it did so to a great extent under U.S. leadership. Trump is demolishing this careful, multilateral work with his tweets.
The rise of the Tweeting Cowboy was bad enough for global commerce, but what he has done with Mexico goes a step further. He has used tariffs to obtain a political goal: showing a victory in his border war after he failed to get financing for the infamous wall with Mexico. And as he threatens to raise tariffs higher, he fails to realize how his move threatens the interests of both the United States and the rest of the world.