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What You Need to Know About Trump's New Trade War With Mexico

If Trump makes good on his late-night tweets, American auto makers, and their customers, will feel the pain.

by David Gilbert
May 31 2019, 3:06pm

Donald Trump loves starting trade wars, and on Thursday night he started a new one with Mexico.

In a pair of dramatic tweets, the president promised that beginning on June 10, sweeping new tariffs will be imposed on all Mexican imports unless undocumented migrants stop crossing the border.

“Mexico must step up and help solve this problem,” Trump said in a subsequent statement. “For years, Mexico has not treated us fairly—but we are now asserting our rights as a sovereign nation.”

The new tariffs will begin at 5 percent on all products coming from Mexico and slowly rise to 25 percent if the Mexican government does not fix what the Trump administration has deemed a national emergency.

The Department of Homeland Security says May border crossings were at the highest level in more than 12 years, adding that resources at the border are being overwhelmed with the arrivals, especially given the number of child and family groups among those crossing the border.

A trade war with Mexico would leave Trump fighting on two fronts, as his year-long trade dispute with China escalates. Meanwhile, this week his administration kick-started efforts to get the United States Mexico Canada Agreement (USMCA) — a replacement for NAFTA — approved.

The new tariffs could “essentially blow up USMCA,” Rufus Yerxa, president of the National Foreign Trade Council, told the Washington Post. “The economic impact will be devastating on both sides of the border.”

Even Trump’s own party slammed the new tariffs, with Senate Finance Committee Chairman Chuck Grassley (R-Iowa) calling it “a misuse of presidential tariff authority and contrary to congressional intent.”

How will these tariffs work?

Unlike the tariffs Trump placed on Chinese imports, there are no exemptions here, just a blanket tax on all goods crossing the border.

On June 10, all products being imported from Mexico will be subject to a 5 percent tariff. That duty will gradually ratchet up over the coming months: 10 percent on July 1, 15 percent on August 1, 20 percent on September 1 and 25 percent on October 1.

“We sincerely hope it does not come to that,” Acting White House Chief of Staff Mick Mulvaney, told reporters Thursday night. “We actually have some level of confidence that the Mexican government will be able to help us.”

What exactly does the U.S. want Mexico to do?

This part is less clear.

The White House wants the Mexican government to stop the flow of migrants crossing the border and suggested three specific actions Mexico can take. None of them is very well defined, which will make it difficult to assess whether Mexico complies.

The White House wants Mexico to:

  • Boost efforts to secure the border between Guatemala and the southern Mexican state of Chiapas.
  • Crack down on the “transnational criminal organizations” the White House believes is helping migrants travel through Mexico to the U.S.
  • Sign a “safe third country” agreement that would mean the U.S. won't have to offer migrants from Central America asylum, putting the onus on Mexico instead.

The final ask is the most significant, and one Mexico has always been opposed to carrying out, especially given that Mexico is not a very safe place for migrants from Central America.

Even if Mexico does nothing, the Trump administration could find a way to claim victory, since border crossings typically drop off during the summer:

What impact will the tariffs have?

Global markets responded within hours of Trump’s shock announcement: the Mexican peso tumbled, as did U.S. stock index futures and Asian stock markets, including the shares of Japanese automakers who ship cars from Mexico to the United States.

Just like the tariffs on Chinese goods, the new taxes will increase the price U.S. consumers pay for goods coming directly from Mexico — though the fall in the value of the peso could initially offset the tariffs.

The sector that will feel the most pain will be the U.S. auto industry. Many U.S.-based car companies rely on a supply chain of parts coming across the border. Their costs will increase, reducing their competitiveness against cars imported from Europe and Asia.

The timing of the new tariffs will also impact Trump’s new North American trade deal. Earlier on Thursday, Mexican President Andrés Manuel López Obrador sent the accord to the Mexican Senate, asking it to approve the deal before September. Vice President Mike Pence traveled to Canada on Thursday to help the deal get approved north of the border.

The new tariffs will make it harder for Trump to convince an already skeptical Congress of the benefits of his new deal. It will also make it much harder for the Mexican Congress to approve the deal.

In response to Trump’s tweets, Lopez Obrador blasted the U.S.’s isolationist policies.

“With all due respect, although you have the right to express it, 'America First' is a fallacy," the Mexican president said in a letter, adding, "because until the end of times, even beyond national borders, justice and universal fraternity will prevail."

Cover: President Donald Trump talks with reporters before departing on Marine One for the Air Force Academy graduation ceremony, Thursday, May 30, 2019, in Washington. (AP Photo/Evan Vucci)

This article originally appeared on VICE News US.

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