Trump Puts Mexico and Canada Free Trade Benefits on Notice

Trump used the tariff threat against Mexico in his first term. That threat led to the creation of the Remain in Mexico policy, which slowed border crossings to a crawl before Biden erased that policy in his first days in office in January 2021. 

Mexico is expected to face new difficulties ahead.

For starters, some members of Congress have been pushing for higher tariffs on Mexican imports. They items run the gambit from cars and steel to aluminum and tomatoes.  

In February, Sen. Josh Hawley (R-MO) called for 100% tariffs on Chinese branded vehicles made in Mexico. Hawley also proposed a bill to go after China EVs.  Although President Biden did not openly credit Hawley for the idea, on May 14, the White House announced 100% tariffs on China EVs coming from China.  For now, China is not yet making EVs for export in Mexico.

In September, during a campaign event in Savannah, GA, Trump said “We will put a 100% tariff on every single car coming across the Mexican border. The only way you can get rid of that tariff is if you want to build a plant right here in the United States.”

Mexico has also come under fire for a steel agreement made during the negotiations of the new USMCA. Numerous Senators, led by Senator Sherrod Brown (D-OH) (who was defeated in the general election), have called for imposing Section 232 tariffs on Mexico.  

Brown was joined by Senator Marco Rubio (R-FL) in calling on the White House to slow the flow of Mexican made steel products into the U.S. “Stopping Mexico’s steel surge is about protecting American industry. It is also about enforcing our trade deals. What is the point of reaching trade deals if such deals are not paired with effective enforcement? Tough rhetoric will not serve American industry unless it is met with action,” they wrote in September.

Mexico was also the target of a trade case brought about by U.S. aluminum producers.  The domestic firms lost that trade case earlier this month.

A recent CPA economic analysis found that aluminum imports into the U.S. have increased by 380% since 2015, leading to the loss of nearly 20,000 American jobs. Countries such as Mexico, which continue to benefit from duty-free status despite violating trade agreements, contribute heavily to this surge, undermining the domestic aluminum industry’s role in sectors ranging from aerospace and defense to renewable energy.

Trump’s latest trade threat should be used as an opportunity to bring steel exports in line with the quota agreements made when the U.S. dropped Section 232 steel and aluminum tariffs against Mexico.

Mexico’s president Claudia Sheinbaum said she would reciprocate and charge the U.S. a similar tax to import any goods into Mexico. The U.S. trade deficit with Mexico is second only to that of our deficit with China. Most of that is the auto industry. Should a “trade war” with Mexico take place over immigration and fentanyl, Mexico would be the loser. Auto parts companies and legacy auto makers would be more likely to stay at home than venture abroad out of concerns Trump would single them out for even higher tariffs for aligning with a country Trump will see as a national security risk due to out-of-control border crossings and fentanyl ruining iconic American cities.

Trump has already made threats against John Deere for saying it will close a factory in Iowa while building a new one in Mexico. 

“I’m just notifying John Deere right now: If you do that, we’re putting a 200% tariff on everything that you want to sell into the United States,” Trump said.

A recent report by CPA by economist Andrew Rechenberg notes that U.S. manufacturing has fallen from 21-25% of GDP in 1950s to about 10% today. The decline is worse than the average in other developed countries. The result is an unbalanced economy excessively dominated by services and imports with factory towns often hallowed out and left to ruin. Japan, Germany, and other large economies have maintained strong manufacturing sectors at 15-25% of GDP. Both of these countries have large trade deficits with the United States and low consumption at home, but Mexico has them beat.

The trade deficit with the Mexico as of September: $125.47 billion, on track to beat last year’s record $152 billion deficit.  The U.S. has a more balanced trade relationship with Canada. But as of September, the deficit was $45.7 billion. When Trump entered office in 2017, the deficit with Canada ended the year at $16.3 billion.