As the ink dried on the edict removing U.S. import tariffs from Mexican and Canadian steel and aluminum, U.S. President Donald Trump stunned NAFTA traders May 30 with the announcement of a major new trade war against Mexico. The program calls for implementation as of June 10 of a 5% import tariff on “all goods imported from Mexico”, with the stipulation that the duty rate will rise by five percentage points per month up to 25%. The tariffs are intended to force Mexico to stop the flow of migrants to the U.S. border, according to the president’s tweet. Mr. Trump has not yet released his plan to impose tariffs on FIFA to boost the USMNT’s ranking or punitive duties on the Kingdom of the North for intemperate behavior, but we presume these are on his ink blotter as we type.
We’ve got a busy day on our hands here and this situation is evolving, so we’ll keep our comments short. President Trump has famously said that trade wars are “easy to win” although U.S. soybean exporters may want to withhold judgement on that until the current trade war against China concludes, whenever that may be. In the current case, however, Mr. Trump is using import tariffs to pressure another country to act on issues not directly related to trade. This is a significant escalation of the U.S. president’s gleeful frenzy of import tariffs which now presumably could be in play for any given whim. This is an ominous evolution of affairs for a North American trade zone that depends deeply on complex cross-border supply chains for manufacturing and supply of consumer markets. One thing we’ll be looking forward to seeing in the coming days is how Republicans in the U.S. Congress will publicly comment on the unexpected new policy. Our guess is that most of them would much prefer to avoid more import tariffs, but they have given themselves unto Trump so wholly in body and spirit that they will have no choice but to repeat talking points about the presumed border crisis while they cringe inside thinking about how their home states and districts are going to take yet another drubbing.
If there is any hope that this new trade war against Mexico can be headed off or resolved before the costs begin to really pile up — and there doesn’t appear to be much — we think that the economic pain the trade wars are bringing to key sectors of the economy is where this hope lies. U.S. agricultural commodity producers in the Midwest are taking a serious beating from the conflict with China, and the U.S. automotive industry faces major potential complications from the new salvos against Mexico. In all of this, we have not even considered the existential crisis the United States could be exposed to if its mission-critical supply of avocados and tequila is put at risk. Summer is starting, folks, and the Fourth of July weekend is just over a month away. Surely that’s enough time to find a negotiated solution.