Trade war. What is it good for? “Absolutely nothing,” classically liberal free-trade advocates might respond. But advocates for aggressive tariff regimes that target ally and enemy alike can articulate an ostensibly rational basis for launching a trade war. Donald Trump used to be among them. Not anymore.
Last week, Trump announced his intention to apply a 5 percent tariff to all Mexican goods entering the United States if the Mexican government doesn’t do something to address illegal immigration. That something was left deliberately vague, and Mexican diplomats in the United States rushed to the negotiating table if only to figure out what that something was. But Washington has not been forthcoming with any deliverables they expect from the Mexican side or metrics by which they would judge the policy’s success. And with only a week before those tariffs are set to take effect (increasing to 10 percent by July 1, and a staggering 25 percent by October), it suggests these duties are a fait accompli.
Trump has thus expanded the trade war’s rules of engagement well beyond the scope of trade. In theory, the imposition of duties and tariffs on a trading partner is an effort to deny or restrict their access to the domestic market in order to achieve some desired objective: either to protect domestic producers from competition abroad or change behaviors abroad. But Trump has abandoned that model entirely in Mexico’s case. The tariffs he envisions are not a means by which to shrink the trade deficit by making it harder for foreign producers to take advantage of the U.S. market in goods; they’re a means toward some other end that has something to do with immigration but isn’t even expressly defined. It’s almost as is tariffs have become an end in and of themselves.
With regard to America’s largest trading partners, the U.S. trade deficit with Mexico in goods is the second largest behind China, but the gap is enormous. According to the most recent data, the United States imported $419 billion more goods from China than it exported; compare this with just $81 billion from Mexico. To be clear: this is not a bad thing. In 2018, America’s total trade deficit rose to record levels—$891.3 billion—but only because Americans enjoyed more purchasing power as the result of a growing economy, strong dollar, and more money in their pockets as a result of the 2017 tax-code reform law. Efforts to “rebalance” the trade deficit in goods are solutions in pursuit of a problem.
This escalation of trade hostilities comes at a time when Trump is winning the messaging war on border security. Polls increasingly show that most voters are inclined to view the situation at the border as “a growing humanitarian and security crisis,” which corresponds with a dramatic uptick in the number of families and unaccompanied minors flooding the border (imagine that). Trump’s solution to that problem seems to be to make the pain of that crisis acutely felt by all Americans, not just those in border communities.
Mexico surged past Canada and China this year to become America’s largest trading partner, and U.S. consumers would not be able to avoid these tariffs. Unlike tariffs on China, which were insulated from most consumer products, duties on Mexican goods are not targeted and could have a compounding effect across the whole North American supply chain. American-made cars source billions of dollars of auto parts from Mexico. The tariffs imposed on Chinese electronic parts and components would become inescapable for the U.S. manufacturers who turned to Mexico to evade them. Ten percent of all imported crude oil comes from south of the border, as does 35 percent of all foreign produce. A 5 percent tax on these goods would hurt; a 25 percent tax would be crippling.
If the president has determined that the rationale for tariffs is circular and self-reinforcing, he’s right. Ultimately, if Trump levies duties on Mexican goods, Mexico will reciprocate, inaugurating a cycle of escalating retaliatory actions that will eventually take on a logic all their own. The original casus belli mercatura—the humanitarian crisis at the border—will be eclipsed. Lobbying interests in both countries will be dedicated to the preservation of their protection from the marketplace. Before long, tariffs that were supposed to be temporary will become intractable.
Introducing trade as a weapon to litigate international disputes with only a tenuous relationship to international commerce is a logic that can be applied to any number of conflicts. The framers of NAFTA, the WTO, and even the GATT understood this and provided procedures and mechanisms by which trade-related disputes could be settled in a way that reduced the likelihood that those disputes would sprawl to include broader political and geostrategic disagreements. Trump’s escalation risks undermining the work of generations of reformers who set the foundations for the integrated global economy and the unprecedented peace and prosperity it precipitated.
Perhaps most maddeningly of all, the president risks throwing away two years of work he devoted to redrafting portions of NAFTA with America’s North American trading partners—something that has frustrated members of Congress. “Trade policy and border security are separate issues,” said Senate Pro Tempore Chuck Grassley. “This is a misuse of presidential tariff authority and counter to congressional intent.” Indeed, but Congress is not hostage to the president when it comes to trade. The legislature can reassume the Constitutional power to “regulate Commerce with foreign Nations” whenever they like, and the sooner, the better. If Trump opens a new front in his trade-war on such specious grounds as these, the U.S. consumer economy could become collateral damage.
