Senate GOP to Trump: Mexico tariffs could derail trade deal


Will Donald Trump’s retaliatory tariffs on Mexico snatch defeat from the jaws of victory on trade? Senate Republicans sent out warnings overnight about the president’s attempts to force Mexico to stem the tide of refugees flowing to the border with an escalating tariff regime. They’re close to replacing NAFTA with Trump’s own US-Mexico-Canada Agreement (USMCA), but Republicans fear this could sap its momentum in Congress:

Trump said Thursday night that he planned to impose a 5 percent duty on all Mexican goods beginning June 5 to pressure Mexico to do more to stop illegal border crossings into the United States. That duty will increase to 10 percent on July 1 and rise by 5 percentage points each month until it reaches 25 percent on Oct. 1 if Mexico does not satisfy his demand.

But the move to link immigration policy and trade is drawing sharp criticism from members of Trump’s own party. …

The [U.S.-Mexico-Canada Agreement] would provide much-needed certainty to our agriculture community, at a time when they need it,” Sen. Joni Ernst (R-Iowa) said in a statement Friday. “If the president goes through with this, I’m afraid progress to get this trade agreement across the finish line will be stifled.” …

“Trade policy and border security are separate issues,” Grassley said. “This is a misuse of presidential tariff authority and counter to congressional intent. Following through on this threat would seriously jeopardize passage of USMCA, a central campaign pledge of President Trump’s and what could be a big victory for the country.”

Well, it seems that Trump’s not the only one creating linkage between the two issues. If Congress wants to pass the USMCA, the issue over the border shouldn’t create any obstacles to doing so. It might cause Mexico to rethink its participation in the USMCA, but that’s not Congress’ problem. They can still pass the agreement and then let Trump deal with the fallout. Passing the USMCA might even provide Mexico with some recourse in federal court to deal with the tariffs.

It sounds as though Ernst and Grassley are worried about Democrats seizing on the tariffs to justify obstructionism on the USMCA. It might make for a good excuse, but Nancy Pelosi was already signaling opposition to aspects of the bill long before this. Democrats might not mind Trump’s aggressive stance on Mexico either, as any progress Trump gets out of the tariffs helps reduce political pressure on them to work with Trump on the border crisis. They certainly won’t praise Trump over the tariffs, but their criticism might be more muted than one would normally expect.

Mexico president Andres Manuel Lopez Obrador responded by accusing Trump of stigmatizing migrants and declaring that “America First is a fallacy.” However, he also announced that he assigned an envoy to discuss the issue with the White House:

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Speaking at his regular news conference, President Andres Manuel Lopez Obrador said Foreign Minister Marcelo Ebrard would be in Washington tasked with convincing the U.S. government that Trump’s measures were in neither country’s interest.

Lopez Obrador said he believed that Trump would understand in due course that the tariff threat was not the way to resolve the matter and stressed that Mexicans had united behind his government.

“I tell all Mexicans to have faith, we will overcome this attitude of the U.S. government, they will make rectifications because the Mexican people doesn’t deserve to be treated in the way being attempted,” Lopez Obrador said.

The bigger problem might not involve Mexico at all. Investors pushed stock futures lower this morning after concluding that the tariff threat would likely derail trade talks with China:

Trump’s 180-degree turn on one of U.S.′ largest trading partners is sending a ominous message to the international community that he can’t be trusted, Wall Street policy analysts said, adding that China, already skeptical of Trump’s reliability, is now less likely to sign a trade deal with him.

“We view this action as further deteriorating the U.S.-China trade fight. Chinese officials have stated their concern about the reliability of President Trump as a trading partner. These tariffs were announced the same day as significant advancement of the USMCA. If China does not believe a deal will stick, why negotiate?” said Ed Mills, public policy analyst at Raymond James, in a note.

Chinese leader Xi Jinping and Trump are set to meet at the G20 summit in Japan next month, but the Mexican tariffs put into further doubt that a “substantive” meeting is possible, Mills added.

“Trump’s readiness to hit a trading partner with new tariff threats soon after striking a trade deal will make China still more cautious about signing up to a deal that Trump then reneges upon, humiliating its leadership,” Krishna Guha. policy strategy analyst at Evercore, said in a note. “Beijing will remain open to talking, but this cannot help prospects for an early breakthrough at G20.”

It’s not an irrational worry, but it might be a little overwrought. Xi might grasp that immigration is the actual issue in this case, and since China doesn’t share a border with the US, the two situations aren’t entirely analogous. Nothing exercises Trump as much as immigration policy, although trade violations come a close second. Beijing is already getting humiliated over Huawei, but they also know that it’s in their long-term interest to settle the trade issue with the US, which can live without China’s markets much better than China can live without US markets.

Even so, Grassley’s suggestion makes more sense than tariffs. He advised the president to go after remittances by imposing punishing fees on them until Mexico steps up to stop the refugee flow at its own southern border. That shifts the cost burden from US consumers to Mexico, doesn’t involve trade directly, and relates very specifically to immigration. If Trump really wants Lopez Obrador to feel some pain, that’s precisely where to aim.

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