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President Donald Trump’s threat to impose new tariffs on Mexico unless it stops the flow of migrants into the U.S. could cause massive economic disruption ahead of the 2020 elections and doom his signature renegotiation of a North American trade deal.
Trump announced a 5% tariff on all imports from Mexico unless it takes “decisive measures” -- as judged by his administration -- to stem migrants entering the U.S., according to a White House statement. The tariffs would begin June 10 and scale up incrementally until they reach 25 percent on Oct. 1.
The surprise move rattled global financial markets as investors were counting on slow but steady progress toward congressional approval of the U.S.-Mexico-Canada Agreement that Trump’s team negotiated to modernize the North American Free Trade Agreement, which went into effect in 1994.
Trump’s sharply worded statement describing alleged consequences of lax border security blamed Mexico and Democrats -- the two groups that have the most control over his trade deal’s fate.
These tariffs represent a de facto dismantling of Nafta, which could unite a broad coalition of manufacturers, farmers and bipartisan lawmakers against the president the year before he seeks re-election.
The Mexican peso weakened by as much as 3% after Trump’s tweets, while investors fled to the safest assets as concerns over new trade conflicts mount. The Japanese yen gained while U.S. futures tumbled and 10-year Treasury yields reached a fresh 20-month low.
By using tariffs to score political points on border security with the element of his voter base most opposed to illegal immigration, Trump jeopardizes a real legislative win and the economic growth that continues to prop up his popular approval.
Iowa Senator Chuck Grassley, the Republican chairman of the Senate Finance Committee, which has authority over trade policy, said “following through on this threat” will put the USMCA at risk, dashing the chance for Trump to fulfill one of his central campaign pledges.
“Trade policy and border security are separate issues,” Grassley said in a statement. “This is a misuse of presidential tariff authority and counter to congressional intent.”
‘Cloud’ Over Deal
The tariff announcement came on the heels of another decision from the Trump administration to send the draft of the USMCA to Congress before House Speaker Nancy Pelosi had finished smoothing over outstanding issues with her caucus. While the draft, known as a Statement of Administrative Action, merely starts a minimum 30-day review period, Pelosi said rushing the timeline was “not a positive step.”
“It indicates a lack of knowledge on the part of the administration on the policy and process to pass a trade agreement,” Pelosi said in a statement. “We have been on a path to yes, but it must be a path that leads to an agreement that delivers positive results for American workers and farmers.”
Democrats have praised U.S. Trade Representative Robert Lighthizer for his willingness to work with them to resolve concerns about provisions regarding labor, the environment, pharmaceuticals and enforcement. While Lighthizer said in a letter to Pelosi Thursday that the draft submission is a “procedural formality” that will not affect the negotiations or the timeline, members of the House Ways and Means Subcommittee on Trade had a darker assessment.
‘Casts a Cloud’
“I want to be clear -- this casts a cloud over the process,” Oregon Representative Earl Blumenauer, the trade subcommittee chairman, said in a statement.
Virginia Democrat Don Beyer, also a member of the trade panel, cited both the tariff threat and the draft statement of the agreement as evidence that the Trump administration is going back on promises made to House Democrats as they negotiate a deal that has sufficient support to clear both chambers of Congress.
“The obvious conclusion is that President Trump does not really want to pass a new Nafta,” Beyer said.
Emergency Powers
Acting White House chief of staff Mick Mulvaney told reporters on Thursday night that the tariff decision wasn’t part of a trade dispute but about the immigration problem. He said if the White House gets enough cooperation from Mexico over the coming weeks to address illegal border crossings, the tariffs will either not take effect or will be lifted swiftly.
The Trump administration reached out to congressional Republicans before the announcement, Mulvaney said, and some lawmakers supported the tariff threat to tighten border security. He said others questioned the authority for this action under the International Emergency Economic Powers Act, but “we feel like we were able to get them more comfortable with that.”
Citing rarely used emergency provisions in U.S. law has been a pattern for Trump to bypass Congress on other issues such as spending taxpayer money and arms sales to Saudi Arabia. He previously used a national security justification to impose steel and aluminum tariffs on Canada and Mexico.
Senator Lindsey Graham, a South Carolina Republican, was among those who said the “border disaster” justifies the tariffs designed to push Mexico to “up their game” against migrants from Central America.
“I don’t like tariffs but in this case it is a national security issue and Mexico needs to change their behavior,” Graham said on Twitter.
Michigan Representative Justin Amash, who after reading Special Counsel Robert Mueller’s report became the only Republican lawmaker to publicly say Trump may have committed impeachable offenses, flatly rejected the president’s argument that other countries bear the cost of tariffs on goods imported to the U.S.
Many of his Republican colleagues, together with pro-trade Democrats, oppose tariffs as a tax on American consumers.
“The president is unilaterally imposing the equivalent of a 17 billion dollar sales tax which sounds not very free market-y to me,” Senator Brian Schatz, a Hawaiian Democrat, said on Twitter. Criticizing Trump’s Make-America-Great-Again motto, he said “I guess MAGA is like a wand you wave to make all of your previous principles disappear.”