Last week President Trump announced that the US would place a new 5% tariff on all products from Mexico. The tariff will go into effect on June 10, will increase to 10% in July, and could go as high as 25% by October. So far, the response from Mexico has been measured, but if an agreement between the two countries cannot be reached, we should anticipate retaliatory tariffs on US agricultural goods. Numerous trade groups and politicians have spoken out against Trump’s plan. Many are concerned about Trump’s willingness to pair trade negotiations with immigration, and worry that this move will put the ratification of the USMCA trade agreement in jeopardy.
President Trump is hoping that the tariff will motivate Mexico to take action to curb the number of illegal immigrants arriving at the US border. Trump tweeted,
“Mexico must take back their country from the drug lords and cartels. The tariff is about stopping drugs as well as illegals!”
Chris Clayton of DTNPF reported that many farm groups and politicians are concerned about the implications of the new Mexican tariffs. US agricultural products are a likely retaliatory target. They’re also concerned about the United States-Mexico-Canada (USMCA) trade agreement falling apart.
Just a couple of weeks ago, the US dropped the Mexican and Canadian tariffs on steel and aluminum, which prompted Mexico and Canada to also drop their tariffs. It was hoped that the three countries could come together to finally ratify the new USMCA trade agreement.
A Measured Response from Mexico- So Far
Now, with additional tariffs on Mexico slated to take effect, it’s hard to predict where things will go from here.
Thankfully, Mexican President Andres Manuel Lopez Obrador’s response has been measured and reasonable. He began by writing President Trump a two-page letter, saying that the country is doing what they can to reduce migrants from Central America. However, he also correctly pointed out that that the US began as a nation of immigrants, and wrote that “Social issues are not resolved through taxes or coercive means.”
Obrador has yet to impose tariffs in response.
Tom Sleight, president and CEO of the U.S. Grains Council told DTNPF that he is thankful for that.
“That was nice to see and we hope the U.S. does the same thing and negotiates in good faith,” Sleight said. “We don’t need this tariff on corn, ethanol, sorghum, DDGs. You know, we’ve got it all going on with Mexico.”
Sleight added that South American competitors Brazil and Argentina “are getting very close” in price to U.S. grains. “While we still have an advantage in that market, the gap is closing right now in the market today.”
Expect Trump’s Base to Be Targeted
The head of Mexico’s farm lobby didn’t respond to news of the tariffs as cooly as Obrador, according to David Alire Garcia and Sharay Angulo of Reuters. Bosco de la Vega, head of Mexico’s national farm council CNA, says that Mexico should target Trump’s base with retaliatory tariffs if the dispute worsens. That means US agricultural products will be a likely target.
“In the unlikely event that (the U.S. tariffs are enacted), we will be supporting the government in surgically implementing tariffs aimed at farm products in Republican states,” he said.
De la Vega says that Mexico is “drawing a new map” of potential targets for tariffs, but did emphasize that they’d only be used as a last resort after all negotiations have taken place. Raul Urteaga, Mexico’s top agricultural trade official in the previous administration, says that if Trump’s tariffs are imposed it would be a violation of international trade rules.
“WTO rules and NAFTA don’t contemplate the imposition of tariffs because of migration issues,” he said.
“Mexico will not have any other option but to retaliate in kind” if the U.S. tariffs are enacted, said Urteaga.
Last year, Mexico exported $26 billion of agricultural goods to the US, and the US exported $19 billion of agricultural products to Mexico. About 80% of Mexico’s total exports are sent to the US.
Trade Groups Respond to Trump’s Mexico Tariffs
Mexican businesses have spent the past year broadening their supply sources. The country did import more wheat, but less of it came from the US. Mexico is also our top corn customer. Lynn Chrisp, president of the National Corn Growers Association commented:
“The recent deal to lift steel and aluminum tariffs on Mexico and Canada was an important breakthrough for USCMA but new tariffs threaten to reverse that progress,” Chrisp said. “Amid a perfect storm of challenges in farm country, we cannot afford the uncertainty this action would bring.”
Other trade groups have been calling on President Trump to rethink his tariff strategy. Chris Kolstad, chairman of the U.S. Wheat Associates and a wheat farmer from Ledger, Montana said,
“The potential fallout from new tariffs is like struggling to survive a flood then getting hit by a tornado.”
David Herring, president of the National Pork Producers Council is hoping President Trump will drop the tariffs and ratify the USMCA.
“American pork producers cannot afford retaliatory tariffs from its largest export market, tariffs which Mexico will surely implement. Over the last year, trade disputes with Mexico and China have cost hard-working U.S. pork producers and their families approximately $2.5 billion.”
Herring believes the US might be missing out on a “historic” opportunity to grow pork exports to new markets due to the rise of African Swine Fever.
Politicians from Both Parties Push Back
Iowa officials from both parties have also chimed in to urge President Trump to reconsider the Mexican tariffs. Republican Iowa Governor Kim Reynolds doesn’t want border security and immigration to be paid for by US farmers.
“Mexico is Iowa’s top trading partner, and placing new tariffs could undo the progress made by the negotiated USMCA trade agreement,” Reynolds said.
Senator Charles Grassley (R-Iowa), chairman of the Senate Finance Committee, was among the first political leaders to speak out against the president’s plan.
“This is a misuse of presidential tariff authority and counter to congressional intent. Following through on this threat would seriously jeopardize passage of USMCA, a central campaign pledge of President Trump’s and what could be a big victory for the country,” Grassley stated.
Doug Palmer of Politico also reported on what certain members of Congress were saying about Trump’s move to impose more tariffs on Mexico. Many think that it could put the USMCA agreement in jeopardy. Iowa Senator Joani Ernst (R) said last Friday:
“The [U.S.-Mexico-Canada Agreement] would provide much-needed certainty to our agriculture community, at a time when they need it. If the president goes through with this, I’m afraid progress to get this trade agreement across the finish line will be stifled.”
Numerous other senators chimed in against Trump’s move- as did national and border state business groups. Neil Bradley, chief policy officer at the U.S. Chamber of Commerce, says this was “exactly the wrong move.”
“These tariffs will be paid by American families and businesses without doing a thing to solve the very real problems at the border.”
Paola Avila, chair of the Border Trade Alliance, says that Trump is just hurting our ability to make trade deals- with any country- not just Mexico.
“The president’s plan, if executed, will do tremendous harm to our relationship with Mexico, to our country’s ability to adopt new trade agreements going forward, and to U.S. consumers, who will be the ones who will pay for these tariffs,” she said.
Trump Defends Plan on Twitter
In response to all of the pushback that President Trump received for his decision to impose tariffs on Mexico, Trump took to Twitter.
“In order not to pay Tariffs, if they start rising, companies will leave Mexico, which has taken 30 percent of our Auto Industry, and come back home to the USA,” Trump wrote. “Mexico must take back their country from the drug lords and cartels. The Tariff is about stopping drugs as well as illegals!”
Another tweet followed:
90% of the Drugs coming into the United States come through Mexico & our Southern Border. 80,000 people died last year, 1,000,000 people ruined. This has gone on for many years & nothing has been done about it. We have a 100 Billion Dollar Trade Deficit with Mexico. It’s time!
— Donald J. Trump (@realDonaldTrump) May 31, 2019
Trump has been insistent that he’s not starting a trade war with Mexico. He says it’s merely a tactic to get Mexico to do what they should be doing in regard to immigration. But many in the republican party don’t believe that pairing immigration policy and trade is the way to handle it. Iowa Senator Charles Grassley said,
“Trade policy and border security are separate issues,” Grassley said. “This is a misuse of presidential tariff authority and counter to congressional intent. Following through on this threat would seriously jeopardize passage of USMCA, a central campaign pledge of President Trump’s and what could be a big victory for the country.”
Commodity Futures Down
Mike Dorning and Shruti Sing of Bloomberg News reported that after Trump announced his plant to tariff Mexico, futures for many commodities fell due to concerns that Mexico would respond with tariffs of their own. Corn futures in Chicago fell 2.1% while wheat slipped 2.2% on Friday. Lean hog futures on Friday closed down 2.2% to 85.925 c/lb- which was the fifth monthly drop in the last six months. Mexican tariffs would also be especially bad news for the US dairy industry. Last year exports made up 15.8% of US milk production on a total milk solids basis, and our dairy exports to Mexico rose 7% to $1.4 billion.
So will Trump’s Mexico tariffs squall the USMCA? It’s clear, many politicians and trade group leaders think that it could. Trump and his administration however, believe that the tactic could get them closer to what they want in regard to immigration, and fulfill his campaign promise of negotiating NAFTA. With more trade-aid payments on the way, maybe Trump’s base will be willing to hold tight and see his plans through.