The strong economy is pretty much the only thing President Trump has going for him right now. And for some reason he seems keen on destroying it.
On Thursday evening, the Trump administration announced that it would impose a new 5% tariff on Mexican imports, ratcheting up in increments to 25% by Oct. 1. This is allegedly to pressure Mexico to stop the flow of immigrants coming to the United States.
This decision is so mind-bogglingly stupid, it’s hard to keep track of all the reasons it’s dumb. Here are a few.
1. Americans are paying these tariffs. We already have two studies by teams of top-notch trade economists who have found that the costs of Trump’s earlier tariffs are being passed along to American businesses and consumers. An update of one of those studies pegged the cost of tariffs announced before Thursday at $831 per U.S. household. It seems reasonable that this latest round of tariffs on Mexican goods will also be largely absorbed by Americans.
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% 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%) 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. Even acting White House chief of staff Mick Mulvaney acknowledged this in a call with 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 a new trade deal 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-related 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?
9. The decision to impose tariffs – and thereby harm red-state farmers and manufacturers – could cause a rift with the Republican lawmakers who have been protecting him. To be sure, they’ve supported him through the trade wars so far. But at some point even they might break, especially if they think another trade war front could jeopardize their own reelection chances.
Catherine Rampell’s email address is email@example.com. Follow her on Twitter, @crampell.
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