People are behaving with remarkable calm as the countdown continues on Donald Trump’s threat to impose tariffs on Mexican imports over an immigration dispute.
People are calm because the U.S. President has made threats in the past that he never followed through on. What they forget is that more often than not he does follow through. And if he follows through on this threat, the consequences for Canada and for North America would be dire.
“It is a serious and aggressive move that he has taken,” said Lawrence Herman, one of Canada’s leading authorities on international trade. “I don’t think we can assume it’s a bluff.”
And the deadline is June 10.
“Mexico shouldn’t allow millions of people to try and enter our country, and they could stop it very quickly and I think they will,” the President said Tuesday at a news conference in London. “And if they won’t, we’re going to put tariffs on. And every month those tariffs go from 5 per cent to 10 per cent to 15 per cent to 20 and then to 25 per cent.” That final figure would be reached by Oct. 1.
The Mexicans are playing down the threat. A high-level delegation arrives in Washington Wednesday to begin talks on averting the tariffs. Mexican President Andres Manuel Lopez Obrador said on Tuesday that he was optimistic a crisis would be averted.
“There are signs that it matters to the U.S. officials that there’s a deal,” he told reporters.
The markets are unfazed – they were positively buoyant, Tuesday – and the American commentariat has largely ignored the story so far. (Impeachment speculation is easier and more fun.)
Eric Lascelles, chief economist for RBC Global Asset Management Inc., believes that many analysts are so focused on the U.S. tariff war with China that they aren’t giving the prospect of a second war, this time with Mexico, much thought.
Also, the tariffs are initially low, giving plenty of runway for negotiations.
“Mexico could throw a few additional troops at the border and resolve this all at once,” he said in an interview.
One reason it seems difficult to take the thought of these tariffs seriously is that their impact could be so severe, especially if they reach the 25-per-cent level. There would be little or no hope that the United States-Mexico-Canada agreement would be ratified by the Mexican Senate or the American Congress – or, for that matter, Parliament.
Beyond that, tariffs on imports from both Mexico and China, two of America’s largest trading partners, “would further increase prices, lower the purchasing power of the U.S. consumer, and lower the demand for goods,” said Julie Adès, a senior economist at the Conference Board of Canada. Since the U.S. is by far Canada’s largest trading partner, this would weaken the Canadian economy.
The impact of a Mexican tariff wall on U.S. consumers and on economic growth even has some leading Republicans in the Senate warning they could move to block the tariffs.
“We have a lot of members who are very concerned, I think, about where this is headed,” said John Thune, Senate Majority Whip.
But Mr. Trump may not care. He is furious that the border has gotten more porous, not less, on his watch. He wants to campaign on the immigration issue, and since there is no promised wall, he will need to show his supporters that he is serious about ending the flow of Latino migrants into the United States.
Sacrificing the USMCA might be, for him, an affordable cost to burnish his anti-immigrant credentials.
Mr. Trump thinks that the more uncertainty he generates, the more likely it is that businesses will relocate back to the United States, creating wealth and jobs.
“All of those companies that have left our country and gone to Mexico are going to be coming back to us,” he predicted at Tuesday’s news conference.
Economic history tells us such beggar-thy-neighbour policies ultimately make everyone poorer, including Americans. But Mr. Trump doesn’t care.
So we have until June 10 for Mexican and American officials to find a formula that pacifies this President. If they fail, the impact of tariffs will be negligible for a few weeks.
After that ... we’ll just have to hope it never comes to after that.