For all the uncertainties in U.S. foreign policy, one thing is clear: U.S. President Donald Trump loves tariffs. He is convinced that they are the most valuable negotiating tool he has, singularly capable of focusing the attention of adversaries and bending them to his will. Trump believes that trade wars, fought primarily with tariffs, are “easy to win” since the U.S. economy is so much bigger than any other and the pain it can inflict is invariably greater than that it will suffer.
That guiding philosophy was ostensibly confirmed last week, after the United States and Mexico announced a new agreement to curb illegal migration into the U.S. Reportedly infuriated by news that more than 130,000 people coming from Mexico had been caught by U.S. border agents in May, the highest monthly level since 2006, Trump warned that the U.S. would impose 5 percent tariffs on all Mexican goods — with a threat that the tariffs would eventually rise up to 25 percent — if Mexico did not do more to control the flow of people across its southern border. That triggered three days of negotiations that produced a deal in which Mexico agreed to take “strong measures” to cut those numbers.
While Trump administration officials hailed the agreement as a breakthrough, the deal was initially criticized for merely repeating pledges by Mexico to take action. Mexican government documents noted that the deal had broken new ground, however: It was “the first time in recent history that Mexico has decided to take operational control of its southern border as a priority.” The agreement is a shift by the Mexico government, which last year argued that migrant enforcement by Mexico was “dirty work” being done for the U.S.
Ever the showman, Trump this week brandished paper that he said detailed a secret agreement that had not yet been made public. Mexican Foreign Minister Marcelo Ebrard first denied any such deal, but he and President Andres Manuel Lopez Obrador conceded Monday that the full scope of the agreement with the U.S. had not yet been disclosed.
Trump has claimed victory, not only for securing a deal but for using tariffs to accomplish it, explaining that “It was all done because of the tariffs.” He added that “If we didn’t have tariffs, we wouldn’t have made a deal with Mexico. We got everything we wanted.” This is a dangerous conclusion, even if it is partially correct.
Now Trump is turning back to China, with which he is already fighting a trade war. In an interview, he predicted that “The China deal’s going to work out. You know why? Because of tariffs … they don’t want to pay the tariffs.” He is reportedly considering heavy tariffs on more Chinese goods — the U.S. already has duties of up to 25 percent on $200 billion in Chinese imports — if Chinese President Xi Jinping does not hold talks with the U.S. president on the sidelines of the Group of 20 summit later this month in Osaka. The Chinese government has not confirmed plans for a Xi meeting with Trump.
Japan should be worried given Trump’s long-standing complaint that it has taken advantage of its relationship with the U.S. to practice unfair trade. The U.S. is demanding concessions from Japan in bilateral trade negotiations, deals it could have had if Trump had not pulled the U.S. out of the Trans-Pacific Partnership. Washington is also threatening to impose sanctions for what it deems to be currency manipulation and unbalanced trade in automobiles — which it considers to be a “national security” threat to the U.S. domestic car industry.
Japan must also be worried that the agreement with Mexico may yet be undone. Trump has said that he will revisit the agreement in 90 days; if Mexico has not done enough to halt the “invasion” of migrants, he may again threaten tariffs. That would do great damage to Japanese firms that established production centers in Mexico and have increased investment there as China has become an even riskier manufacturing site. Japanese direct investment in Mexico increased seven times over the past decade, reaching $10.4 billion at the end of 2017. The number of Japanese companies in Mexico grew from 384 to 1,182 over that same period. In some cases, the tariffs would absorb all profits from those operations.
Even more disturbing is the fact that Trump threatened tariffs only days after his administration submitted the new U.S.-Mexico-Canada trade deal to Congress for consideration. That agreement is intended in part to prevent such unilateral action. Trump’s readiness to ignore that arrangement and to continue to threaten tariffs despite any deal bodes ill for any government that seeks predictability in its relations with the U.S.
When it comes to economic policy, the only law that Trump seems to believe in is that of the jungle. The lesson of the Mexico immigration negotiations is that the biggest and most powerful country in the world should be able to impose its will on others. Restraint is a mistake. That is a sad and mistaken conclusion.
IN FIVE EASY PIECES WITH TAKE 5