How Trump's tariff threat against Mexico might backfire

US president has scapegoated migrants for middle-class woes. But a Mexican trade war could inflict more economic pain.

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    If tariffs do serious damage to the Mexican economy, even more migrants could leave for the US [Drew Angerer/AFP]
    If tariffs do serious damage to the Mexican economy, even more migrants could leave for the US [Drew Angerer/AFP]

    The clock is ticking on the threat by United States President Donald Trump to slap five-percent tariffs on a wide variety of Mexican goods - from avocados and grapes to blue jeans and car parts - if Mexico does not do more to stem the flow of undocumented migrants trying to enter the US

    Officials from both countries have been engaged in diplomatic talks in Washington, DC, trying to strike a last-minute deal before import taxes on Mexico are scheduled to take effect on Monday.  

    While the president has staked his political capital on the idea that punitive trade measures can force the US's southern neighbour to implement overnight changes to migration policy, economists are warning the strategy could backfire.

    "The great irony of this presidential action is - if it inflicts heavy damage on the [Mexican] economy, more unemployed Mexicans will migrate north for better employment opportunities here," said Dan Griswold, a senior research fellow for the Mercatus Center at George Mason University.  

    Griswold noted that using tariffs to force concessions from trading partners "hasn't brought any progress in our relations with China" and added that if the US slaps tariffs on Mexico, it will harm both economies.

    "Trade is a win-win. Trade wars are lose-lose," he said. That means "higher prices and lost exports for Americans, while Mexico will pay a heavier price, as most of their exports go to the US".

    Calling tariffs a "bizarre policy choice" for tackling migration issues, Griswold told Al Jazeera that Trump "should back away as soon as possible".

    Economic pain, political gain

    If tariffs are imposed on Monday, the fallout will rain down on both the US and Mexican economies, but to different degrees.

    "Mexico will be the hardest hit" by tariffs, said Gary Hufbauer, senior fellow at the Peterson Institute for International Economics.

    "Probably a recession [will occur] if the tariffs go above 15 percent," he told Al Jazeera, referring to the rounds of additional five-percent monthly hikes that Trump has promised, capping out at 25 percent by October if the dispute remains unresolved. 

    "US consumers will pay $1,700 per household of three persons if tariffs reach 25 percent," Hufbauer warned, predicting that cars could become $5,000 more expensive within five months, while prices on medical supplies and electronics could rise significantly.

    "Fruits and vegetables will be noticeably more expensive at the supermarket," he said, adding that if Mexico retaliates with tariffs on US goods, "US corn, chicken, pork and beef farmers" will be squeezed.

    As costs rise for US consumers and businesses, it could have a chilling effect on the labour market, and result in the loss of up to 400,000 US jobs, especially in the manufacturing and retail sectors, according to a study by the Perryman Group.

    But some economists see Trump's tariff threat against Mexico as the logical evolution of tactics that won him the White House. 

    Francisco Gonzalez, associate professor of political economy at the Johns Hopkins School of Advanced International Studies, said tariffs would be the culmination of a years-long effort by Trump to construct an electoral platform - and a border wall - scapegoating Mexico for the declining fortunes of the US middle class.

    LoomingTariffs On Mexican Goods Bound For U.S. Strain U.S.-Mexico Relations
    Workers process cattle from Mexico after they were brought into the US through a gate in the border wall [Joe Raedle/AFP]

    "The president has been talking about this since before he was elected," Gonzalez told Al Jazeera. "The strategy is rational and follows a clear script that gave him victory."

    "And given that things have not changed dramatically [in the US] - the lower-middle class and working classes have not seen major [improvements] in their livelihood - this message continues to carry a lot of political dynamite," Gonzalez said. "People continue to support him regardless."

    "Trump is not breaking up a relationship with the Mexican government, because he doesn't have one," said Gonzalez. "It's basically about refocusing attention on the border and on immigration."

    In terms of economic toll, Gonzalez agrees that "first and worst [impacted] are Mexican producers and consumers. Then second, American consumers. Third, American producers sending stuff to Mexico, [but they] won't be taxed [until] it comes back to the US."

    Many goods cross the border a half-dozen times before reaching consumers, since supply chains snake across the border.

    Despite their ire, some members of the US Congress - and others who want to see business as usual - will be energised to fight against nativism and the protectionist "assault on free trade", Gonzalez suggested.

    With many lawmakers deeply concerned about the impact of tariffs on states such as Texas, Arizona and Michigan, legislators could attempt to override the president's trade authority to act under the International Emergency Economic Powers Act of 1977. But both houses of the US Congress would need to muster veto-proof two-thirds majorities to nullify the tariffs.

    Migration policy trumps trade?

    "If I had to guess, there's a good chance tariffs will be walked back [by Trump]," said Geoffrey Gertz, a fellow at the Brookings Institution. But he suggested that might happen only after a round or two is levied, and ripple effects begin to spread across the economy.

    "[Tariffs] were pushed by the immigration wing in the White House - not the trade and economy wing," he told Al Jazeera. "Traditional pro-trade Republicans think this policy is a big mistake."

    Many analysts agree that using the trade cudgel to force drastic changes from Mexico is not a robust formula.

    The linkage likely will not be effective, they say, because the problem of Central American migration is so deep-rooted and complex that the Mexican government could not solve the issue - even if it wanted to - simply by allocating more resources.

    Migrants from Guatemala are seen on the banks of the Rio Bravo river
    Migrants from Guatemala on the banks of the Rio Bravo River as they cross illegally into the US to turn themselves in and request asylum in El Paso, Texas, as seen from Ciudad Juarez, Mexico [Jose Luis Gonzalez/Reuters]

    In addition, the government of Mexican President Andres Manuel Lopez Obrador remains in a weak fiscal position, having been in power for just six months. Observers say the president is cutting social services and focusing on petrol sector investments, with few funds to spare for migration enforcement.

    For its part, Mexico has begun to accept more asylum seekers and police its perilous frontier regions. And Lopez Obrador's administration has tried to manage the situation carefully, without alienating the US.

    A possible agreement discussed by negotiators involves the border deployment of 6,000 Mexican troops, and a change in asylum rules requiring migrants to seek refuge in the first foreign country they enter. 

    But Trump's trade advisor Peter Navarro said on Wednesday that Mexico could avert tariffs only by taking in all asylum seekers, completely sealing off the southern border with Guatemala, and strengthening security checkpoints throughout Mexico.

    Trump himself - in vague but far-reaching language - has demanded that Mexico halt all "illegal immigration".

    Meanwhile, the US has already sent Department of Homeland Security personnel to the Guatemalan side of the Mexican border.

    Critics of the Trump administration's approach suggest that the US should do more to fix its own flailing asylum system, adding more judges and border facilities to handle the influx of people - which hit a seven-year high in May.

    Migration has been increasing sharply, with Washington unable to stop the arrival of hundreds of thousands of impoverished labourers, women and children.

    USMCA stuck

    As the freshly minted United States-Mexico-Canada Agreement (USMCA) still needs ratification by all three national legislatures, some economists warn that a seemingly endless string of tariff increases on the horizon could jeopardise implementation, and by extension, the global competitiveness of all three economies.

    "We have a North American economy, not separate US, Canadian and Mexican ones. [People and] things flow back and forth," Claude Barfield, a trade policy expert at the American Enterprise Institute told Al Jazeera.  

    Barfield said that US trade issues with Mexico are minor when put into global perspective, and that assessing import taxes "on parts of a door for a Buick or a Ford makes US companies less competitive".

    "We should be doing something more targeted and precise," he said. “Tariffs have a downside, and [Trump is] lying when he says [the] US doesn't pay for it."

    Barfield added that tariffs also harm the poor and working classes disproportionately. "People with less income spend more of it on basics," he said. 

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    Mercatus' Griswold said tariffs would be a "huge setback for the passage of the USMCA, the administration's top legislative priority for the year".

    "It poisons relations with Congress on both sides of the aisle, sours enthusiasm for the agreement in Mexico, and casts doubt on America as a reliable negotiations partner," he said. "The 'new NAFTA' [North American Free Trade Agreement] is supposed to supply certainty, and what the president is doing is maximum uncertainty."

    Griswold said US credibility would be harmed, signaling to "lots of other countries" that a deal with the US is "not worth the paper it's written on".

    "Trump is mixing two entirely different policy areas: immigration and trade," Griswold added. "And he's getting them both wrong."

    SOURCE: Al Jazeera News


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