US economy

Trump’s Mexico tariffs will damage both sides


Donald Trump prides himself on bold foreign policy moves that unnerve the intended targets. But even by his own standards, the US president’s decision last week to declare a national emergency and impose tariffs of up to 25 per cent on Mexico unless it halted the flow of migrants coming north was extraordinary. Apart from the undesirable conflation of trade with immigration policy, Mexico was set an impossible target: to stop the flow of tens of thousands of migrants by June 10 or face an initial 5 per cent levy on all its goods, rising each month until October.

The move will play to Mr Trump’s nationalist base, with its emotive justification of a border crisis caused by lax Mexicans unwilling to prevent it. Imposing tariffs on America’s third biggest goods trading partner amid an intensifying battle with China, its largest goods trading partner, will appeal to those who believe tariffs will return lost manufacturing jobs to the US.

They are wrong. Mr Trump’s move against Mexico is more likely to cause serious economic damage on both sides of the Rio Grande. The timing is particularly delicate, coming just as legislators in Washington and Mexico City consider ratification of the successor trade deal to Nafta, the USMCA.

Nafta’s success over the past two decades has left the Mexican and US economies closely intertwined. Car parts and sub-assemblies, for example, criss-cross the border multiple times during manufacturing. The proposed tariffs would play havoc with supply chains. Hence the howls of pain from business lobbies in both countries.

Mr Trump does now have a point in calling what is happening on the southern border a crisis. US agents detained 109,144 migrants along the frontier in April alone, the most since 2007. The nature of the migration has changed. Family groups with small children are overwhelming processes and facilities designed for young single men.

Yet Mr Trump’s diagnosis is faulty. His Mexican counterpart, Andrés Manuel López Obrador, while not blameless, is closer to the truth. The underlying problem is not lazy or incompetent Mexican border officials. It is a crisis of governance in Guatemala, El Salvador and Honduras, the three nations of Central America where most of the migrants originate. Poverty, corruption and spiralling violence have pushed many to seek escape.

Mr López Obrador has proposed to shift the focus of US aid to Mexico from security-focused programmes to economic development. The aim of lifting living standards to reduce migration chimes with mainstream thinking. But it cuts no ice with Mr Trump. Earlier this year, the president ended US aid to Central America to punish it for its habit of exporting migrants.

Mr Trump’s choice of tariffs as the stick with which to beat Mexico over migration leaves Mr López Obrador in a quandary. Keen to avoid a fight with his big northern neighbour, he has dispatched his foreign minister to Washington for talks. Sensibly, he has called for restraint and avoided inflaming the dispute by threatening retaliation.

The highly unequal nature of the relationship leaves Mexico with few good options. The best may be to continue patient diplomacy. A few bones could be thrown to Mr Trump, by increasing border patrols along Mexico’s porous frontier with Guatemala, stepping up deportations and reversing a budget cut to the national migration institute. These should come with a demand that Mr Trump push vigorously for ratification of the USMCA. But Mexico’s best hope may lie in lobbying the numerous US businesses and consumers affected by the levies to push Mr Trump for a rethink.



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