President Donald Trump's tariff brinkmanship with Mexico ended up tipping his hand more than he likely intended.
In an effort to induce the United States' largest trading partner to crack down on unauthorized immigration across the border, Trump spent weeks threatening the government of Mexico with a round of severe tariffs on imports across the board—a 5 percent tariff on June 10th that, after jumping to 10 percent on July 1st, would then jump an additional 5 percent each month after to roughly 25 percent. Then on Friday, Trump announced that the two countries had reached an accord on the matter, averting the potentially disastrous economic and political fallout of the measure. As part of the deal, Mexico promised to mirror Trump's border deployment with its border force of national guard troops and "take unprecedented steps to increase enforcement to curb irregular migration." In response, Trump totally backed down from the threat of sweeping tariffs.
But the following day, the New York Times revealed that the deal Trump had announced "consists largely of actions that Mexico had already promised to take in prior discussions with the United States over the past several months." The Friday announcement was a feint, of sorts, bluster for the sake of domestic political gain.
The episode is classic Trump, especially when it comes to issues of unauthorized immigration at the U.S.–Mexico border: Look no further than, say, the video of "new" border wall construction that Trump posted on Twitter in mid-February that actually showed a replacement project from the previous year. The Mexico saga reveals the Shakespearean emptiness of the president's would-be protectionism: Like the border wall itself, Trump's tariff gambit is no negotiating cudgel, but mere sound and fury, signifying nothing.
From a purely economic perspective, potential tariffs on Mexican imports would be much more of a detriment to the U.S. than a net gain. While Trump justified the measure based on "the extraordinary financial cost imposed by large-scale illegal migration," economic research indicates that the tariffs the president proposed likely wouldn't make up for that cost. According to conservative groups, undocumented immigration costs the U.S. roughly $54 billion a year, nowhere near the $275 billion figure that Trump has cited in the past. By contrast, separate research suggests that the initial 5 percent tariff on Mexican goods would cost the U.S. more than 400,000 jobs for a total of—according to the World Bank global measure of gross domestic product (GDP) per U.S. job at around $114,990—nearly $46 billion.
In other words, the initial 5 percent tariff would have helped pay off costs of undocumented immigration, but the subsequent job losses would end up burdening the U.S. economy more than helping.
Ironically, those tariffs would have more heavily impacted states that went for Trump during the 2016 presidential election, a self-inflicted wound for the president going into a turbulent 2020 election cycle. According to the Times, Mexican imports make up a significant portion of the GDPs of states like Michigan (10.5 percent, or $56.3 billion), Texas (5.9 percent, or $107 billion), Kentucky (3.2 percent, or $6.8 billion), and Arizona (2.5 percent, or $9 billion), all of which supported Trump in 2016.
Based on research from the Perryman Group, an economic consultancy, the tariffs would have impacted Michigan in particular due to its robust automobile industry and Texas and California (which took in $44 billion in imports in 2018, per the Times) due to the outsized impact on retail imports. And those tariffs would likely translate to voter preferences: Americans are already enduring an average estimated cost to individual households at around $490 this year thanks to the tariffs on China that Trump implemented back in May, according to Oxford Economics.
"Mexico has long been a top trading partner for the United States. In fact, Mexico recently passed China to become the largest, due in part to trade issues with China which have reduced the volume of U.S.–China trade," M. Ray Perryman, president of the Perryman Group, a Texas economic consulting firm, told CNBC, before the deal was struck. "To impose a tariff on all goods from our largest trading partner will cause significant cost increases and other harms to the economy. ... If Mexico retaliates and imposes tariffs on the U.S., which is likely, the negative effects on the economy would be even greater."
While there is evidence that, in the case of an ideology-heavy political figure like Trump, Americans don't always vote their economic interest, analysts believe the tariffs could have had deleterious effects on Trump's base.The tariffs against Mexico and China, among others, "would more than wipe out any gains from his $1.5 trillion tax cut for low- and middle-income earners, leaving them with less money to spend into a consumer-driven economy," according to another insightful Times analysis. "Higher earners would fare only slightly better, with their tax gains significantly eroded but not entirely washed away." When it come to aggressive tariffs, nobody really wins.
But this the core problem: In Trump's mind, these economic cudgels are part of the "economic nationalism" that is, as I've written about for Pacific Standard in the past, deeply divorced from actual economic policy. Just as his border wall is more an antiquated symbol of closed borders and strong security in an increasingly open world, so too are the threat of tariffs, a gasping jeremiad that has revealed itself as more geared toward bolstering a domestic political narrative than serving the U.S.'s position on the international stage.
So much for the Art of the Deal.
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