Trade War Averted or Trade War Delayed?
By: Josh Zive, Senior Principal, Policy Resolution Group at Bracewell
At 8:30 p.m. EDT on Friday, June 7, President Trump announced that the tariffs scheduled to be placed on imports from Mexico on June 10 were being suspended when he tweeted that:
This tweet ended the most recent chapter of tariff and immigration disputes with Mexico, but it has not ended the larger controversies surrounding trade policy with Mexico. In the wake of the President’s announcement suspending the tariffs, here are our thoughts on the key issues surrounding trade between the U.S. and Mexico:
There has been a significant amount of confusion surrounding the content of the agreement that averted the tariffs. The text of the agreement itself is broadly focused on actions Mexico is taking or will take to increase its enforcement and change its treatment of individuals seeking asylum, but it does not provide details on specifics.
After President Trump’s initial announcement suspending the tariffs, more questions about the substance of the agreement began to arise. First, early Saturday morning, President Trump tweeted:
“MEXICO HAS AGREED TO IMMEDIATELY BEGIN BUYING LARGE QUANTITIES OF AGRICULTURAL PRODUCT FROM OUR GREAT PATRIOT FARMERS!”
He then followed up with several more tweets, and on Sunday he claimed that:
“Important, some things not mentioned in yesterday [sic] press release, one in particular, were agreed upon. That will be announced at the appropriate time. There is now going to be great cooperation between Mexico & the USA, something that didn’t exist for decades. However, if for some unknown reason there is not, we can always go back to our previous, very profitable, position of Tariffs - But I don’t believe that will be necessary.”
Finally, after media reports indicating that most of the actions in the agreement were concessions that Mexico had been willing to make for months, President Trump tweeted on Monday, June 10, that:
“We have fully signed and documented another very important part of the Immigration and Security deal with Mexico, one that the U.S. has been asking about getting for many years. It will be revealed in the not too distant future and will need a vote by Mexico’s Legislative body! We do not anticipate a problem with the vote but, if for any reason the approval is not forthcoming, Tariffs will be reinstated!”
After this series of statements, it remains unclear what was agreed to during last week’s talks. For example, Mexico has claimed that the agreement does not include any commitments to purchase agricultural products. Further, while President Trump claimed that legislation would be introduced soon in Mexico, presumably to change asylum procedures, Mexican leadership has claimed that such changes will be explored on a regional basis. The Mexican Government also said changes would be considered only if the flow of migrants is not stemmed by the measures included in the language of the agreement.
Ultimately, the question of what is was actually agreed to by Mexico and the U.S. will have significant policy and political implications in the U.S. President Trump has invested a significant amount of his political capital into grappling with immigration and the U.S. border with Mexico, and he is likely to be a harsh judge of Mexico’s actions. If President Trump believes that Mexico is not fulfilling its obligations as he sees them, it is much more likely that the President will use the threat of tariffs on Mexican products in response to future media coverage of large groups of migrants attempting to enter the U.S.
In December of 2018, President Trump tweeted that “I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so.” This statement remains one of the clearest and most instructive summaries of the Trump Administration’s approach to trade policy. While the June 10th tariffs have been “suspended indefinitely,” the ever-present threat of new and sweeping tariffs remains, and it is likely that this will not be the last time that this type of tariff threat is used by the Trump Administration.
The crisis with Mexico is a reminder that the President’s views on trade and tariffs continue to be firmly held. In fact, this episode will likely only reinforce the President’s belief that tariffs, not just the threat of tariffs, are positive for the U.S. and U.S. companies. As President Trump noted when calling into a CNBC broadcast on the morning of June 10, “People haven’t used tariffs, but tariffs are a beautiful thing when you are the piggy bank.”
President Trump has already made a number of statements about how the tariffs could be resurrected if Mexico fails to pass legislation or cooperate on immigration enforcement in a manner that satisfies him. Given this firmly held belief on trade policy, unless the President can be persuaded that the economic costs of tariff uncertainty outweigh the benefits, it is likely that we could repeat this crisis with Mexico or other countries in the coming months.
The termination of the recent tariff fight is unquestionably good news for USMCA, but it doesn’t change the fundamentally rough road facing the new trade agreement.
Before last week’s tariff crisis some early steps were taken toward adoption of the USMCA in Mexico and the U.S. The Mexican Senate is expected to consider the USMCA during a special session the week of June 17th, and Mexican President Andrés Manuel López Obrador has expressed confidence that the agreement will be ratified. The USMCA faces a much more challenging environment in the U.S., however, where free trade policies are always complicated and Speaker of the House Pelosi has insisted that labor and environmental protections be written into the text of the agreement (rather than be dealt with in side letters).
The events of the past week could have been fatal for the USMCA if the tariffs had been enacted, as the tariffs would have made it much more difficult for the deal to garner support from Mexican legislators and critics of the President. Even with the tariffs, USMCA continues to face a range of political and timing challenges that will make ratification of the agreement during 2019 a difficult challenge for the Trump Administration.
At 8:30 p.m. EDT on Friday, June 7, President Trump announced that the tariffs scheduled to be placed on imports from Mexico on June 10 were being suspended when he tweeted that:
“I am pleased to inform you that The United States of America has reached a signed agreement with Mexico. The Tariffs scheduled to be implemented by the U.S. on Monday, against Mexico, are hereby indefinitely suspended. Mexico, in turn, has agreed to take strong measures to stem the tide of Migration through Mexico, and to our Southern Border. This is being done to greatly reduce, or eliminate, Illegal Immigration coming from Mexico and into the United States. Details of the agreement will be released shortly by the State Department. Thank you!”
This tweet ended the most recent chapter of tariff and immigration disputes with Mexico, but it has not ended the larger controversies surrounding trade policy with Mexico. In the wake of the President’s announcement suspending the tariffs, here are our thoughts on the key issues surrounding trade between the U.S. and Mexico:
- What did the countries agree to?
There has been a significant amount of confusion surrounding the content of the agreement that averted the tariffs. The text of the agreement itself is broadly focused on actions Mexico is taking or will take to increase its enforcement and change its treatment of individuals seeking asylum, but it does not provide details on specifics.
After President Trump’s initial announcement suspending the tariffs, more questions about the substance of the agreement began to arise. First, early Saturday morning, President Trump tweeted:
“MEXICO HAS AGREED TO IMMEDIATELY BEGIN BUYING LARGE QUANTITIES OF AGRICULTURAL PRODUCT FROM OUR GREAT PATRIOT FARMERS!”
He then followed up with several more tweets, and on Sunday he claimed that:
“Important, some things not mentioned in yesterday [sic] press release, one in particular, were agreed upon. That will be announced at the appropriate time. There is now going to be great cooperation between Mexico & the USA, something that didn’t exist for decades. However, if for some unknown reason there is not, we can always go back to our previous, very profitable, position of Tariffs - But I don’t believe that will be necessary.”
Finally, after media reports indicating that most of the actions in the agreement were concessions that Mexico had been willing to make for months, President Trump tweeted on Monday, June 10, that:
“We have fully signed and documented another very important part of the Immigration and Security deal with Mexico, one that the U.S. has been asking about getting for many years. It will be revealed in the not too distant future and will need a vote by Mexico’s Legislative body! We do not anticipate a problem with the vote but, if for any reason the approval is not forthcoming, Tariffs will be reinstated!”
After this series of statements, it remains unclear what was agreed to during last week’s talks. For example, Mexico has claimed that the agreement does not include any commitments to purchase agricultural products. Further, while President Trump claimed that legislation would be introduced soon in Mexico, presumably to change asylum procedures, Mexican leadership has claimed that such changes will be explored on a regional basis. The Mexican Government also said changes would be considered only if the flow of migrants is not stemmed by the measures included in the language of the agreement.
Ultimately, the question of what is was actually agreed to by Mexico and the U.S. will have significant policy and political implications in the U.S. President Trump has invested a significant amount of his political capital into grappling with immigration and the U.S. border with Mexico, and he is likely to be a harsh judge of Mexico’s actions. If President Trump believes that Mexico is not fulfilling its obligations as he sees them, it is much more likely that the President will use the threat of tariffs on Mexican products in response to future media coverage of large groups of migrants attempting to enter the U.S.
- Exit Tariff Man?
In December of 2018, President Trump tweeted that “I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so.” This statement remains one of the clearest and most instructive summaries of the Trump Administration’s approach to trade policy. While the June 10th tariffs have been “suspended indefinitely,” the ever-present threat of new and sweeping tariffs remains, and it is likely that this will not be the last time that this type of tariff threat is used by the Trump Administration.
The crisis with Mexico is a reminder that the President’s views on trade and tariffs continue to be firmly held. In fact, this episode will likely only reinforce the President’s belief that tariffs, not just the threat of tariffs, are positive for the U.S. and U.S. companies. As President Trump noted when calling into a CNBC broadcast on the morning of June 10, “People haven’t used tariffs, but tariffs are a beautiful thing when you are the piggy bank.”
President Trump has already made a number of statements about how the tariffs could be resurrected if Mexico fails to pass legislation or cooperate on immigration enforcement in a manner that satisfies him. Given this firmly held belief on trade policy, unless the President can be persuaded that the economic costs of tariff uncertainty outweigh the benefits, it is likely that we could repeat this crisis with Mexico or other countries in the coming months.
- What about USMCA?
The termination of the recent tariff fight is unquestionably good news for USMCA, but it doesn’t change the fundamentally rough road facing the new trade agreement.
Before last week’s tariff crisis some early steps were taken toward adoption of the USMCA in Mexico and the U.S. The Mexican Senate is expected to consider the USMCA during a special session the week of June 17th, and Mexican President Andrés Manuel López Obrador has expressed confidence that the agreement will be ratified. The USMCA faces a much more challenging environment in the U.S., however, where free trade policies are always complicated and Speaker of the House Pelosi has insisted that labor and environmental protections be written into the text of the agreement (rather than be dealt with in side letters).
The events of the past week could have been fatal for the USMCA if the tariffs had been enacted, as the tariffs would have made it much more difficult for the deal to garner support from Mexican legislators and critics of the President. Even with the tariffs, USMCA continues to face a range of political and timing challenges that will make ratification of the agreement during 2019 a difficult challenge for the Trump Administration.
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