Business risk: High risks for firms trading from Mexico to the US and medium risk form firms sellling from the US to Mexico of retaliation. Highly disruptive effect for automobile supply chains across the US-Mexico border.
U.S. Air Force airmen install a fence along the U.S.-Mexico border (Credits: DoD photo by Staff Sgt. Dan Heaton, U.S. Air Force.)
A few months after the US and Mexico (with Canada) concluded a trade deal, an update of the North American Free Trade Agreement, Mexico seems back in the crosshairs. The US President announced that he would impose 5 per cent tariffs on Mexican goods entering the US market until the Mexicans halt illegal immigration.
It’s not clear how hurting the Mexican economy will solve the immigration issue. However, it makes it very clear how tariffs are becoming a hammer for the US President with which he can hit any issue. By using tariffs out of the trade context, deescalation of trade wars becomes more difficult as there will always remain issues on which one disagrees, and that could (in this logic) lead to new tariffs.
It also makes it very clear to all states that would consider making concessions in trade negotiations that giving in to US pressure does not make them safe for another round of tariffs in the (near) future. If the bully continues bullying you once you have given your lunch money, what’s the point of doing it next time? The EU and China will think twice before giving in to US demands in the future.
Are the tariffs on or off? A few days after President Trump announced a deal with Mexico and a few days of squabbling with Mexico over what’s exactly in it, the US President has renewed his threats. Wether the deal sticks for the moment or not, this clearly will not be te end of it. To be continued…