Yet another tariff on Mexico and another trade promise broken by Trump is a purely political ploy and those who will pay are the people who have the least ability to.
The yet-another-set-of-new-tariffs announced by Donald Trump Thursday evening are enough to confuse even the most dedicated economic watcher. First, the U. S. was in a trade war with China and the EU and Mexico and Canada, the last two being our closest trade partners in more ways than one.
NAFTA, often criticized (for many valid reasons), found itself turned into a campaign issue by Trump in the 2016 election as a major reason so many jobs were gone. Forget that they had been going since the 1980s as companies used global access to slash costs and jobs in the U. S., avoid the price of labor and economic safeguards, and do the physically dirty business of manufacturing overseas.
There were a lot of jobs created by the free financial interaction among the three North American partners. Many lost, too, and the moral shame there was that those who made money off it all didn’t put the necessary resources aside to help move people out of destroyed jobs and into different types of work to create new industries in the Rust Belt. Maybe it could have transformed into something quite different from the labor dumping ground it became. But the U. S. motto has become « Quis Est Meus? » or « Where Is Mine? »
The point of « replacing » NAFTA was really to obtain, from what multiple trade experts have told me over the last few months, a nearly identical agreement with a few useful changes that Trump could then brag was something that he delivered.
Part of the process involved imposing significant tariffs on Canada and Mexico to reduce the amount of steel and aluminum coming in, because of another Trump promise: to restore the U. S. metals industry.
Partly the industry had squandered technical advances in the 70s and 80s and allowed other countries like Japan to surpass it. Another aspect has been the serious international dumping of steel by China for years between massive government subsidies of the industry and overbuilding of capacity, including, according to an academic I’ve spoken with who has studied it, the annual addition of capacity equal to Japan’s, the second largest producer in the world.
Not that Trump knew all this. More likely it was people in the administration who bear a grim hatred for China. (That country’s hands are nowhere close to clean—then again, neither are ours.) But global prices have been down and U. S. manufacturing expenses are high.
By imposing tariffs on our neighbors, there was a price increase in the U. S., lasting a few months at most, that created a relatively small number of jobs in comparison to the ones jeopardized in all the industries that use steel. The tactic was hurting the U. S. in general far more than helping, but it played well politically in some states whose support Trump would need in a 2020 reelection bid.
Finally, there was a new agreement, the USMCA, for U. S.-Mexico-Canada. However, once negotiated, the tariffs remained. That put up the backs of those to the north and south of us, who kept their own tariffs in place. Major political forces in Congress said that there was no way the agreement would pass without a change in the tariff arrangement.
And then came an agreement to drop the tariffs. But now things took a different turn. I suspect the administration was aware that the new agreement would never be able to deliver on the jobs and economic improvement that millions in the country have counted on. Not advantageous when going into an election year.
So, the administration pulled a fast one. It waved hands about immigration, which is both a social and a perceived economic issue, and claimed that a new tariff would force a change. Already experts are raising doubts and Mexico again is getting its collective back up again, for good reason.
