Impacts of Trump’s tariffs

Friday, June 7, 2019

In case Donald Trump fulfills his threat to impose a generalized tariff of 5% from June 10 to all products imported from Mexico, it is estimated an economic impact of 17 billion dollars for companies and consumers in the United States, besides that the export manufacturing sector in Mexico could evaluate going to other destinations, becoming an inhibitor for investments.

In this document we present the most relevant events since Donald Trump announced on twitter this subject.

Trump declares “war” on tariffs to Mexico

US President Donald Trump announced on Thursday that he will impose a new gradual tariff starting on June 10, which starts at 5% all products imported from Mexico, in retaliation because he considers that the country does not redouble efforts to stop the flow of Central American migrants arriving in the United States.

“The passive cooperation of Mexico to allow this massive incursion (illegal migration) constitutes an emergency and an extraordinary threat to national security and the economy of the United States”

Donald Trump, statement published by the White House.

Through his Twitter, the US president wrote that “on June 10, the United States will impose a 5% tariff on all goods entering our country from Mexico. Tariffs will remain, he said, until the flow of illegal migrants passing through Mexico is stopped, and he also threatened to increase them gradually “until the problem of illegal migration is solved.”

The White House explained that President Trump would resort to the Law of Economic Emergency Powers International to implement the tariff.

“If the crisis of illegal migration is alleviated through effective actions taken by Mexico, which will be determined in our sole discretion and criteria, tariffs will be eliminated,” said the presidential residence.

But if Trump is not satisfied, the tariffs would increase as follows:

“Tariffs will remain at the 25% level until Mexico substantially stops the illegal entry of foreigners (…) Therefore, we expect and appreciate the quick and effective actions that we expect Mexico to install immediately,” the statement added. .

“The current state of affairs is profoundly unfair to the American taxpayer, who assumes the extraordinary financial cost imposed by large-scale illegal migration, even worse is the terrible and preventable loss of human life.” Some of the most deadly and vicious gangs of the planet operate on the other side of our border and terrorize innocent communities, “said the US president.

For years, Mexico has not treated us fairly, but now we are affirming our rights as a sovereign nation, he continued.

“If Mexico decides not to cooperate to reduce illegal migration, the sustained imposition of tariffs will produce a massive return of jobs to US cities and towns,” he said.

Donald Trump said he is confident that Mexico will act quickly and added that “coyotes” and “cartels” are a threat that must be eliminated.

The announcement came hours after the White House initiated an action to accelerate the vote in Congress on the new North American trade agreement (the T-MEC), and that Mexico did the same to ratify as soon as possible the agreement that also includes the United States and Canada.

Mexico will not cross arms after Trump threat: Seade

Therefore, some advisers to the White House are trying to convince Trump not to make the final announcement of the new tariff on Friday, as planned, arguing that such a threat would affect the financial markets and could jeopardize the approval of the comercial agreement between Mexico, Canada and the United States.

The argument of the affectation to the markets was real, because the actions of Toyota, Honda, Nissan and Mazda sank after the announcement of Trump.

Assistant secretary for North America, Jesus Seade, said that the imposition of a 5% tax on Mexican products in the United States would be disastrous and Mexico should respond forcefully.

“That threat taken to action would be very serious and Mexico will not stay with its arms crossed when the T-MEC ratification is in process,” he said. In an interview in the Senate, after delivering the final text of the T-MEC, the official said that at that time he had no knowledge of what was declared by the US president, however, he considered that Mexico should have a firm position. “

“President Trump releases many tweets and many are overcome by another tweet the next day. Some take action, I prefer to be guided by actions. If there was something like that we have to do something ourselves, but some kind of strong response, and not so soft as other presidential periods did, ” he said. He explained that we will have to wait to see what the new message of President Trump is about.

Later in a press conference, the undersecretary assured that the measure does not have any justification and could unleash a commercial war that no one agrees and that would directly affect one and a half million Mexicans and would impact two billion dollars.

“The correct thing would be to answer an eye for an eye, 5% to all US imports, but it is going to the jungle when we want to build something good, rather we have to talk hard with them and say it is not worth it,” he said.

“It is disastrous, of course, that this threat to action would be very serious, extremely serious (…) It is talking about an indirect thing, there is no justification for migration to do that, Mexico will be in a bind and we will see how is answered. “

Jesús Seade, Assistant Secretary for North America

Seade rejected that President Trump’s response to migratory flows was something foreseeable, since he considered it an extreme measure that we have to discuss with the United States and the interior of Mexico to see the response that will be given, since it is something very new.

AMLO’s letter to Donald Trump

Given the threats of Donald Trump to impose tariffs on Mexican products as long as the migratory flow to the United States is not stopped, President Andrés Manuel López Obrador sent a letter to the US president in which he exhorted him to dialogue, and instructed the secretary of Foreign Relations Marcelo Ebrard to travel to Washington to solve the differences.

In the letter, the President said that social problems are not resolved by taxes or coercive measures, and issued a warning: “Remember that I do not lack of courage, I’m not cowardly or timid but I act on principles: I believe in politics that , among other things, were invented to avoid confrontation and war. “

In addition, he added that in a short time Mexicans will not need to go to the United States indicating that migration will be optional and not forced. The above, he said, will be achieved through the fight against corruption, which is the country’s main problem.

After the letter Trump tweets: It’s time for them to do their part!

On Friday, the president of the United States, Donald Trump, asked Mexico to “finally do what thy must” to solve his problems with migration.

This was after Mexican President Andrés Manuel López Obrador responded with a letter to his US counterpart about the announcement of application of tariffs of 5% on all Mexican products.

“Mexico has taken advantage of the United States for decades, because of the Democrats, and because our immigration laws are bad, Mexico has made a fortune in the United States for decades, they can solve this problem easily, it’s time for them to finally do what they must do! “, wrote Trump on his Twitter account.

The US president added in another tweet that “it is difficult to believe that with the crisis on the border, the Democrats do not prepare a quick and easy solution, it would solve the problem but they want open borders, which is equal to crime!

He also wrote that companies, in order not to pay tariffs, will leave Mexico and return to the US if they start to rise.

“Mexico must recover its country from cartels and drug traffickers, and tariffs are as much to stop drug trafficking as illegal migrants.”

He said that 90% of the drugs that enter the United States enter through Mexico. “We have a trade deficit of 100 billion dollars with Mexico, it’s time!”

Trump tariffs violate NAFTA and the rules of the WTO: CEC

The application of tariffs to Mexican products – as announced by Donald Trump – would be in violation of the current North American Free Trade Agreement (NAFTA) and the rules of the World Trade Organization (WTO), said the Business Coordinating Council ( CCE).

He also added that the announced decision to enter into operation as of June 10 is “incongruent”, after the result of collaboration established between Mexico and the US in the commercial field in the process of ratification of the T-Mex, materialized in the presentation of the commercial agreement before the legislative powers for approval.

“There is no justification for the possible application of these tariffs, which would cause damages to Mexican exporters, but also to US consumers and producers,” said the Mexican private sector.

The organism that Carlos Salazar directs trusts that behind the announcement dialogue prevails and joint solutions are built to common problems, such as migration, without harming the future development and shared prosperity that we always seek to achieve.

The president of  Coparmex, Gustavo de Hoyos, and the leader of  Concanaco, José Manuel López, backed the decision of the chief executive to send Washington the head of the Foreign Affairs Secretariat, Marcelo Ebrard, to persuade the US government. However, “there should be no hesitation or complacency,” said the employer leader.

José Manuel López Campos described as unacceptable that it is intended to impose trade sanctions on our country for a social issue, such as the flow of migrants.

Mexico sets commercial stance with EU: Tariff threat calls into question the T-MEC

Jesus Seade, said Monday that the tariffs announced last week by Donald Trump, the US president, to all products imported from Mexico questioned the ratification of the T-MEC, a trade treaty between the two countries. with Canada.

“We have reached the point where the 3 have begun processes for ratification (…) We have this huge stone in the road (the Trump tariffs) that calls into question this treaty (the T-MEC) which is to go in that direction (of ratification), ” Seade commented at a press conference.

Seade added that Mexico, the United States and Canada should continue the trade negotiation work as they have done so far, since tariffs, in addition to hindering processes, have direct and indirect costs on the US population and the supply chains of the United States. the companies of the countries.

In her participation in this conference, the secretary of Economy, Graciela Márquez Colín, highlighted the importance of the commercial integration between the United States and Mexico.

One of the points that stood out was the proportion of trade between both countries that, he said, is carried out by the companies themselves.

“It is the same company that sends and receives products across the border for its manufacture, to incorporate added value, which are processes that occur on both sides of the border.”

Another element is that they are not just a few states of the American Union, he indicated that according to the statistics all the states of the United States are those that participate in the chain of productive integration. In addition, he said that “trade to Mexico and from Mexico” generates jobs in the United States.

He stressed that the imposition of tariffs of 5%, initially, and up to 25%, will affect this productive integration: consumers, value chains and employment.

On the other hand Víctor Villalobos, Secretary of Agriculture and Rural Development (SADER), indicated that Mexico and the United States have a complementary market. With the imposition of tariffs on Mexico, in the agricultural sector the losses would be of one thousand 410 million dollars, that is, 130 million dollars per day, which would impact both countries and in particular consumers.

Villalobos considered that the migratory problem must be addressed from its origin: “a very important part in the Central American brother countries comes in a very high proportion, it is estimated at 60% or more of the rural areas”.

Therefore, he indicated that the strategy of both countries should be aimed at programs that attack the problems of these areas to bring better conditions of development, wealth and alternatives of programs focused on climate change, as well as crop diseases and pests.

Mexico analyzes “carousel” as revenge if the US imposes tariffs: Economy

Secretary of Economy, Graciela Marquez, assured the morning of this Monday, June 3, that several options are being analyzed in case the US meets its threat to impose tariffs on all Mexican imports, including recourse to international organizations and implementation of a mechanism called “carousel”.

“On the issue of reprisal, President Andrés Manuel Lopez Obrador has said that there are several paths to follow, the first would be to resort to multilateral organizations, but we know that this has a less effective rhythm, and there is the matter of reprisal and the carousel. “

Graciela Marquez, Secretary of Economy

The carousel is a measure that allows rotating the products to which a reprisal is applied, that is, they can change the taxed products in a certain period of time but the amount of the compensation remains the same. This mechanism raises the uncertainty in the export sector of the country to which retaliation is applied and pressures it to withdraw tariffs.

He pointed out that for the moment it is not planned to respond in the same magnitude in which tariffs would be applied, but a strategic approach is being taken to take into account the many aspects of the commercial relationship.

“The Ministry of Economy does not want to use tariffs to damage value chains, create jobs or damage investment, but rather seeks free trade to prevail in North America,” he said.

There is an 80% chance of reaching an agreement with the EU: Marcelo Ebrard

On June 4, after the consultations and preparatory meetings to avoid the imposition of tariff rates, the Secretary of Foreign Affairs, Marcelo Ebrard, considered that Mexico has 80% in favor of finding a successful negotiation with the United States government.

Ebrard pointed out that although the dialogue revolves around migration, Mexico will present a unified position of all the concerns in the sectors where it is considered that there will be a greater impact.

As for the meeting that was scheduled for June 5 with Secretary of State, Mike Pompeo, the foreign minister said that a dignified and effective position would be established, in addition to which a great effort is already being made to solve the migratory problem and that without the Mexican effort, the flow of migrants would be greater toward the United States.

Prepared for the worst scenario

Although the road is open to reach a negotiation, the foreign minister said that the Mexican government is prepared for a negative scenario and if this is the case next Thursday, it will be informed about the steps Mexico will take.

So far meetings have been held between the secretaries of agriculture and commerce. There will be a meeting between the negotiators of the TLCUEM, Robert Lighthizer and, Jesús Seade. Likewise, there have been meetings with Think Tanks and with different scholars on the subject to adequately prepare the Mexican proposal to present tomorrow.

We are likely to impose tariffs on Mexico and, at that time, negotiate: Trump

The president of the United States, Donald Trump, said on Tuesday, June 5, that tariff rates are likely to be imposed on Mexico and, from that moment, the negotiation would begin. He also stressed that on Wednesday the teams from Mexico and his administration will meet to talk about it.

In a brief message to media, the US president said it was Mexico who requested the hearing to avoid the imposition of liens. In addition, he reiterated the work of the Mexican government, whom he again asked to stop the migration. “Mexico should take more actions and stop this onslaught, this invasion of our country,” he said.

Meanwhile, President Andrés Manuel López Obrador affirmed that an agreement will be reached with the United States Government so that the tariffs announced by Trump will not enter into force before June 10.

Trump announces agreement with Mexico and suspends tariffs

The United States President, Donald Trump, said that the Mexican government and its administration have reached an agreement on the tariff issue, suspending the changes indefinitely.

Through his Twitter account, the US president mentioned that Mexico has compromised to strengthen its measures on immigration.

In DICEX we are always aware of what happens in the world of foreign trade, so we will continue to inform you about what is happening around this negotiation between Mexico and the United States.