WASHINGTON – President Trump’s latest foray into trade policy is notable for its economic recklessness (it could tip Mexico into a recession, followed perhaps by the United States), its gratuitous insults of a close ally (Mexico) and its rank opportunism (it would shift power to the White House from Congress).
For anyone who missed Trump’s announcement, here’s a summary. The president said he would impose a 5% tariff on all imports from Mexico ($372 billion in 2018) unless it halted illegal immigration by June 10. It would add another 5% every month that the demand was not met until the tariff hit 25%.
The timing of Trump’s policy is especially offensive. Earlier, Mexico, Canada and the United States had negotiated a successor to the North American Free Trade Agreement (NAFTA); the new arrangement is called the United States-Mexico-Canada Agreement (USMCA). Mexico and Canada were preparing to ratify their agreements; the Trump administration was trying to assemble the necessary support.
The betrayal resembles a marriage where one of the betrothed doesn’t show up for the wedding.
“Unless the Congress intervenes or Trump changes his mind, the new USMCA is dead,” said Edward Alden, a trade expert at the Council on Foreign Relations, in a blog post.
The implications extend beyond Trump’s proposal, Alden argued. The White House has cited the International Emergency Economic Powers Act (IEEPA) of 1977 as authorizing Trump’s ultimatum, but Alden says that law aimed to cover “unusual and extraordinary threats” as opposed to giving the president “carte blanche authority to impose tariffs on close allies.”
Moreover, Alden added, “no other country – no matter how closely allied or how dependent on the United States – will be willing to negotiate any agreements with this administration, knowing they can be torn up at the whim of the president.”
There is a sheer nastiness to Trump’s proposal that seems to ignore the fact that, counting services (tourism, transportation) and trade with Canada, the U.S. trade deficit with the NAFTA countries was only about 5% ($66 billion) on total trade of $1.385 trillion in 2018, according to government figures from the Office of the U.S. Trade Representative.
If Trump’s tariffs do go into effect, the impact on Mexico’s economy could be devastating, according to Shannon K. O’Neil, also of the Council on Foreign Relations. The economy has already slowed, she said, and is highly dependent on trade, which equals 38% of the economy.
In another indication of how vulnerable economic growth may be in the NAFTA countries, Federal Reserve Chairman Jerome H. Powell suggested that the Fed might ease monetary policy to offset any adverse effect from Trump’s tariffs. The stock market rallied strongly on the news.
But whether Powell’s pledge is sensible economic policy is an open question. Implying that the Fed can – and should – ease monetary policy to offset the possible hazards of Trump’s trade policies puts the Fed in an uncomfortable position.
If the Fed does nothing, it increases the odds of a recession. If the Fed takes action, it seems to support Trump’s trade views. There are drawbacks no matter what it does or doesn’t do.
Meanwhile, Republican senators have been meeting to discuss a challenge to Trump’s tariffs. The situation is nothing if not fluid. But whatever happens, Alden is surely correct on the main issue:
“If the Congress lets Trump get away with this, he will be free to slap tariffs on any country or any product at any time for whatever reason he dreams up. Congress’ constitutional authority over trade will be utterly hollow.”
Robert Samuelson is a columnist for The Washington Post.