2. This will seriously screw up supply chains and hurt American companies — including American companies that need Mexican parts to make their own products that get sold here or exported abroad. Mexico recently became our No. 1 trading partner. Two-thirds of our imports from Mexico are intra-company trade (i.e., a firm trading with itself across the border).
The auto industry is especially vulnerable; of U.S. auto exports, about 35 percent of the value-added comes from imported inputs, according to Deutsche Bank Securities Chief Economist Torsten Slok. Note also that the U.S. auto industry is already in trouble. Announced layoffs for the first four months of this year in autos are the highest since 2009, according to Challenger, Gray & Christmas.
3. We don’t know the full economic cost of the tariffs, but it would be painful for the United States. Two years ago, a research and consulting firm calculated an estimate for the costs of a similar (20 percent) tariff on Mexican imports: “Over three years, the bill comes to $286 billion in lost value to the U.S. economy and a loss of 755,000 American jobs. Two-thirds of those job losses would be at the expense of low- to medium-skilled workers.”
4. It’s not clear the tariffs are legal. The White House said its legal justification for the tariffs is the International Emergency Economic Powers Act. This 1977 law is mostly related to sanctions; it has never been used for tariffs, and some trade lawyers have suggested that it does not give the president power to do so.
5. Mexico does not have power to do the thing Trump seems to be asking the country to do. He’s asking Mexico to block people from Central America from crossing into the United States to exercise their internationally recognized legal right to seek asylum.
6. There is no plan. There was never a plan. Acting White House chief of staff Mick Mulvaney acknowledged this to reporters. When asked what it would take to remove the tariffs, he said the decision would be “ad hoc.”
7. This new self-inflicted trade-war wound gives us less leverage in negotiating with China (and the European Union and Japan, both of which we’re also simultaneously trade-warring with). Basically, it makes our stated willingness to absorb a little more trade-war pain less credible, since we’ll be absorbing so much pain already.
8. It will also damage our ability to negotiate with China (and the EU and Japan) for another reason: It proves, once again, that Trump can’t be trusted to keep his word, or even a signed trade agreement.
Recall that Trump had previously said that his global steel and aluminum tariffs would stay on our friends in Canada and Mexico until a new North American Free Trade Agreement was signed. But after it was signed last fall, he still didn’t remove the tariffs. Finally, two weeks ago, under pressure from lawmakers, he did remove them … only to turn around and announce fresh across-the-board tariffs on everything from Mexico.
Why would anyone ever make a deal with this president, one that required literally any concessions, given this track record?
