Trump Opens Another Trade War Front

Ken AshfordEconomy & Jobs & Deficit, Immigration and XenophobiaLeave a Comment

Defenders of President Trump’s trade wars have tried to argue that his reckless moves are actually part of a cunning strategy to lower tariffs, knock down trade barriers, and usher in true free trade. But Trump just threw that defense out the window by announcing a plan to impose a 5% (and escalating to 25%) tariff on Mexican imports “until the Illegal Immigration problem is remedied.”

But this is mindbogglingly stupid on so many levels.

First, in the most direct way, raising tariffs on Mexico will mean a tax increase of up to 25% on American families and businesses purchasing any products from Mexico, one of the U.S.’ leading trade partners. In 2018, Americans imported $346.5 billion in goods from Mexico, so on that basis it would amount to a nearly $87 billion tax increase. It also will punish industries that will be affected by inevitable retaliatory tariffs.

Secondly, this threat comes as the Trump administration was jump-starting the approval process for the United States-Mexico-Canada Agreement that Trump previously touted as a major trade victory, but that has yet to be officially ratified. This will surely disrupt that process.

Thirdly, the whole justification for the previous administration’s tariffs has been that they were all part of a broader strategy to negotiate better trade deals. Yet in this case, Trump is trying to lump trade in with cracking down on illegal immigration, which is a separate issue even if it could be argued there is a relationship between the two.

Fourthly, it’s difficult to see how this would facilitate containing illegal Mexican immigration. The surest way that Mexico has to reducing the desire of Mexicans to leave for America is to improve the Mexican economy, which would be immensely more difficult in the midst of a trade war with the U.S.

Fifthly, it’s unclear what the metric will be for determining whether “the Illegal Immigration problem is remedied.” Does that mean no illegal immigration from Mexico? A reduction by a certain percentage? I suppose we’ll have to leave that to the White House staffers tasked with translating Trump’s insane tweets into official policy language.

In a White House statement expanding on the tweet, Trump said, “If the illegal migration crisis is alleviated through effective actions taken by Mexico, to be determined in our sole discretion and judgment, the Tariffs will be removed.”

But that does not clarify exactly how it would be “alleviated.”

The statement says, “If the crisis persists, however, the Tariffs will be raised to 10 percent on July 1, 2019.” The timeline is ridiculous. What sort of serious alleviation of the flow of illegal immigration could be achieved within three weeks, even if Mexico were eager to act? It gets even more insane after that, escalating to “15 percent on August 1, 2019, to 20 percent on September 1, 2019, and to 25 percent on October 1, 2019. Tariffs will permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory.”

What has the been the result of Trump’s tariff wars sop far? This:

The United States lost its spot as the world’s most competitive economy amid an ongoing trade war with China, according to an annual ranking from the IMD World Competitiveness Center. 

Both Singapore and Hong Kong had more competitive economies than the U.S., per the report, which evaluates 63 countries on 235 measures. High fuel prices and fluctuations in the dollar’s value diminished the confidence-boosting impact of Trump’s tax policies, said the center. 

“We need to distinguish between competition and competitiveness,” Arturo Bris, the director of the IMD World Competitiveness Center, said while speaking Wednesday on CNBC’s Squawk Box Asia. 

He voiced agreement with President Trump’s claims that China is hurting the ability of  U.S. companies to compete globally.

“But China is not hurting American competitiveness, which refers to prosperity, the ability to generate growth in the economy, to create business, jobs, and for people to make a better living,” he said. Bris also described Trump’s ongoing trade war with China as “a tantrum in the sense that it is hurting companies in the United States more than in any other country.”

As I write this, the market has not opened yet. But expect a bad reaction.

UPDATE: Just before the market opens, Trump tweets

UPDATE: Yyyyyyup.

Here’s Lindsay Graham’s flip-flop on tariffs: