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June 3, 2019

Surprise U.S. Tariffs On Mexican Products Puts USMCA In Jeopardy

President Donald Trump last Thursday announced a plan to impose tariffs on all imports from the United States’ largest trading partner, Mexico. The penalties will begin on June 10 and will continue until the Mexican government increases efforts to stem illegal immigration into the United States. (The president said, “If the illegal migration crisis is alleviated through effective actions taken by Mexico, to be determined in our sole discretion and judgment, the tariffs will be removed.”)

The president took the action, he said, based on authority given him under the International Emergency Economic Powers Act, which allows a president to regulate trade to deal with “any unusual or extraordinary threat” to national security that warrants a national emergency.

The penalties will start out at five percent and will rise five percentage points on the first day of each month until they reach 25 percent on October 1, 2019. At five percent, the U.S. Chamber of Commerce estimates the penalties will cost U.S. consumers $17 billion. If they rise to 25 percent, the cost could reach $86 billion or more.

Monica de Bolle, a senior fellow at the Peterson Institute for International Economics, told Bloomberg Government (subscription required) the penalties could devastate the Mexican economy. She said, “If this does go ahead, and Trump keeps ratcheting tariffs up, Mexico is going to get a big economic hit. You’ll see GDP falling, inflation accelerate. It’s going to be a mess.” Reuters noted the new policy also spelled “potential chaos” for the president’s efforts to get the U.S. Congress to approve the United State Mexico Canada Agreement (USMCA) that is supposed to replace NAFTA.

Ironically, President Trump’s tariffs announcement came just after the Office of the U.S. Trade Representative sent to Congress the draft Statement of Administrative Action for the USMCA, which allows the Trump administration to send the final implementing bill for the USMCA to Congress in 30 days and could allow Congress to vote to approve the trade pact before the August recess.

The tariff announcement also came as officials in Canada and Mexico initiated procedures to approve the USMCA.

While the Mexican government has not yet announced any retaliatory tariffs on U.S. products, Mexico’s former chief NAFTA negotiator, Kenneth Smith Ramos, argued on Twitter that the new tariffs violate NAFTA and World Trade Organization rules and that, if Mexico retaliates, it “would be off the charts.”