Its retaliatory tariffs will swat
at Trump’s political base.
Trump
has turned on longtime allies, labeling them a national security threat in order
to levy 25 percent tariffs on steel and 10 percent on aluminum. For neighboring
Mexico, this will affect some $3 billion in exports. While not insignificant, it
is just a speck of the $300 billion-plus the nation sends north each year (for Canada,
steel and aluminum comprise $11.5 billion of more than $300 billion in U.S.-bound
trade).
Yet the
size of the tariffs belies their true import. They officially bury the already dying
Nafta renegotiation. They threaten the integrated industries
that send basic inputs back and forth across the border, hurting manufacturers,
workers and consumers alike. And more broadly, notwithstanding the president’s repeated
claims, they demonstrate that trade wars aren’t easy to win.
Take
Mexico, which responded to the tariffs with its own counter-salvo. While many observers
anticipated a fight with the EU, fewer expected it from Mexico. The nation is utterly
reliant on the United States. As one of the world's most commercially open countries,
Mexico has turned trade into its main economic motor. And of the $400 billion Mexico
exports each year, 8 out of 10 cents head north. Among Trump’s ever-growing number
of combative trade fronts, Mexico might therefore stand out as the most likely to
fold.
But Mexico
is prepared for this fight. As Economy Minister Ildefonso Guajardo declaredafter
the tariffs were announced, "we always said that we were going to be ready
to react." It immediately announced punitive measures. Certain types of steel
made the list; so did lamps, cheese, pork, apples, grapes and cranberries.
This menagerie wasn’t haphazard. Instead, it was designed to gain both economic
justice and political leverage, targeting key congressional districts and Trump
supporters.
Mexico
has been down this road before, during a decade-long battle over cross-border trucking.
Nafta promised, alongside goods and services, to open
up transportation markets: After a phase-in period, Mexican and American truckers
were supposed to be able to take their loads straight from the factories to their
final customers on the other side of the border. Yet the U.S. government continued
to block Mexico’s rigs on safety fears and more than a little pressure from the
Teamsters.After years of cajoling, after the creation
and then cancellation of pilot programs, Mexico in 2009 finally invoked retaliatory tariffs to the tune of $2.4 billion a year.
Nearly 100 products, ranging from Oregon Christmas trees, Wisconsin paper and Washington
pears to New York jewelry, Florida orange juice and Idaho potatoes, were hit with
levies of 5 to 25 percent. As the tariffs rose, so too did the constituent phone
calls to influential representatives and senators of both parties. Two years later,
the Obama administration developed a new pilot program to allow vetted trucking
companies and their drivers to cross the border, and the tariffs ended.
As a
trade tit-for-tat begins anew, the Mexican government is deploying the same strategy.
This time it isn’t alone. Several U.S. manufacturers along now well-developed supply
chains are supporting their neighbor. Canada and the EU are joined in the fight, and their initial lists look notably
similar to Mexico’s initial trucking foray, penalizing cosmetics, manicure and pedicure
products, felt tip pens, toilet paper, and hair products among dozens of others
items produced in targeted congressional districts of influential House members.
At home,
these steps are proving popular. Despite being in the middle of a heated and ugly
election season, all the candidates support the Mexican Commerce Department’s moves.
President Enrique Pena Nieto looks to gain at least his citizen’s sympathy, if not
their political approval, from his stance.
The nation’s
business community also has the government’s back. Granted, Mexico was careful to
not put tariffs on the types of steel used in the auto industry, and domestic dairy
producers may even benefit. But overall a mix of patriotism and justified indignation
has overridden anxieties among Mexico’s manufacturers. This stands in stark contrast
to the United States. The U.S. Chamber of Commerce condemned Trump's tariff move,
and agricultural interests announced the tariffs will “take American farm operations to the
breaking point.”
No one
knows yet where this skirmish will lead. Despite its initial bravado, Mexico will
suffer, particularly if the U.S. ups the ante with further tariffs or threats to
Nafta. The nation is also facing a political transition
that could have its own severe economic repercussions. But the initial round already
shows that there are no easy trade war wins, and that the U.S. government would
be wise not to underestimate the weapons of the seemingly weak.