Trump suspends Mexico tariffs, but the threat still looms

Mexico tariffs suspended, President Trump

American businesses, industry groups, and consumers are breathing a sigh of relief after President Donald Trump announced the proposed tariffs against Mexico are “indefinitely suspended.”

Well, for now, at least.

President Trump had threatened to impose 5% tariffs on all Mexican imports effective June 10 as a way to force the country to stop migrants from illegally crossing the border. The rate was to increase each month until reaching 25% in October and would remain at that level until Mexico took action.

However, on June 7, just a few days before the tariffs were to go into effect, it was announced that the two countries had reached an agreement.

According to a “U.S.-Mexico Joint Declaration” released by the State Department, “the United States and Mexico commit to strengthen bilateral cooperation, including information sharing and coordinated actions to better protect and secure our common border.”

But not long after that news, the President suggested that the use of tariffs against Mexico is still on the table.

Saying more details about another part of the agreement are still to come, President Trump claimed that part of the deal with Mexico would need to be ratified by Mexican lawmakers. He tweeted that if Mexico doesn’t approve the arrangement, then tariffs “will be reinstated.”

Speaking to Reuters on the sidelines of a G20 finance meeting in Fukuoka, Japan, US Treasury Secretary Steven Mnuchin said the President has the right to impose tariffs if Mexico doesn’t uphold its part of the agreement.

“Our expectation is that Mexico will do what they’ve committed to do and our expectation is that we won’t need to put tariffs in place, but obviously if that’s not the case, the President retains that authority.”

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Questions around agriculture

As with most recent tariff-related negotiations, agriculture has again taken center stage.

Shortly before the announcement of the agreement, President Trump tweeted that any deal would include provisions for Mexico to purchase more American agricultural products. He later tweeted that Mexico had agreed to “immediately begin buying large quantities” of agricultural products from the US.

The State Department communique made no mention of agriculture as part of the agreement.

When asked about whether the US and Mexico had reached a new deal on agriculture during an interview with CBS’s “Face the Nation,” Martha Bárcena Coqui, Mexico’s ambassador to the US, said she expects trade between the two countries to increase over time.

“It is our understanding that without tariffs and with USMCA ratification, there will be an increased rate, both in agricultural products and manufacturing products,” she explained, referring to the United-States-Mexico-Canada Agreement that will replace NAFTA once ratified by all three countries.

According to the Office of the United States Trade Representative, in 2018, the US sent $20 billion worth of agricultural products to Mexico, which is the US’s second largest market for agricultural exports.

Mexico is also the US’s largest supplier of agricultural imports, with $26 billion brought in during 2018.

“We are your most important market and you are our most important market,” said Bárcena Coqui. “Are trade and agriculture products going to grow? Yes, it is going to grow, and it is going to grow without tariffs and with USMCA ratification.”

Pressed during the interview about whether the recent agreement includes any provisions for agriculture trade, the ambassador said she is “absolutely certain that the trade in agricultural goods could increase dramatically in the next few months.”

She also noted that “there are a lot of details that we discussed during the negotiations and during the conversations that we didn’t put in the declaration.”

While it’s unclear if the agricultural increases President Trump referred to had to do with USMCA, he tweeted that additional matters agreed to during the negotiations will be “announced at the appropriate time.”

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Potential impacts linger

With the use of tariffs against Mexico not yet completely off the table, the harmful repercussions that such a situation could have on the US economy remain lingering possibilities.

One analysis found that if the previously proposed Mexico tariffs were enacted and maintained, more than 400,000 American jobs would be lost. The report by The Perryman Group indicated that Texas would be hit hardest by such tariffs, with the loss of more than 117,000 jobs. Among industry groups, tariffs on Mexican goods would hurt the retail trade sector the most, with 136,516 job losses.

The US Chamber of Commerce projected that tariffs against Mexico would be particularly harmful to American small businesses.

Of the 15,000 American companies that import products from Mexico, 40% have less than 50 employees. A 5% tariff would cost small businesses in the US more than $800 million. Those costs would jump up to $4 billion with a 25% rate on Mexican imports.

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