Mexico's president warns Trump's tariffs will worsen US inflation, kill jobs

Mexico’s president warns Trump’s tariffs will worsen US inflation, kill jobs

Posted by Admin November 26, 2024 Jobs

Mexico’s president responded Tuesday to President-elect Donald Trump’s threat to impose tariffs on goods produced in her country with a warning that his plan would cause more inflation and hurt American automakers like General Motors and Ford.

Claudia Sheinbaum Pardo opened her morning news conference by reading aloud a letter she sent to Trump, questioning his vow to slap a 25% tariff on goods produced in Mexico if her government doesn’t stop the flow of migrants or fentanyl to the U.S. border.

She suggested Trump may not know that, over the past year, her country has taken “a holistic approach” to blocking the tens of thousands of people who cross Mexico to reach the U.S. southern border, or that U.S. Border Patrol migrant encounters have dropped more than 75% since last December as a result, she said.

She warned about the economic risk for both countries, and for the American companies that rely on their Mexico assembly plants to deliver low-cost goods to consumers.

“The response to one tariff will be another, until we put at risk companies that we share – yes, that we share,” she said, in what appeared to be a veiled threat to counter any Trump tariffs with ones of her own.

“For example, among the principal exporters from Mexico are General Motors, Stellantis and Ford Motor Co., which arrived in Mexico 80 years ago. Why put a tax on them that will put them at risk? It’s not acceptable,” she said. “And it would cause inflation and job losses for the United States and Mexico.”

Mexico is currently the United States’ largest trading partner, outpacing China. Trade between the U.S. and Mexico topped $855 billion annually in 2022, according to the Office of the U.S. Trade Representative.

Trump campaigned on a promise to use tariffs to get Mexico to slow migration and the flow of illegal drugs north. He posted the first details of his plan to his social media site, Truth Social, on Monday.

“On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States and its ridiculous Open Borders,” Trump said.

Trump has frequently used threats, including tariff threats, to extract concessions at the negotiating table as he tries to strike deals for the United States.

“What we’ve got this time around is Trump making these threats as a negotiating tactic in the same way he did the first time around,” said Duncan Wood, executive director of the nonpartisan Pacific Council on International Policy.

“It’s not just about migration,” he said. “It’s not just about fentanyl. It’s about getting an upgrade in the bilateral relationship.”

Mexico crackdown stems migration to U.S. border

Mexico’s “holistic approach” is a euphemism for the country’s crackdown on migration this year.

Since January, Mexico has been rounding up migrants headed for the U.S. border and sending them to the southern parts of Mexico over and over again – what experts have called a “carousel” approach to enforcement.

The country has kept up its enforcement, analysts say, in part because the Biden-Harris administration opened a humanitarian, legal pathway through its CBP One application for migrants to make appointments to present at the U.S. border, which Trump has threatened to end.

Sheinbaum Pardo’s letter to Trump was tough talk coming from Mexico, which quickly bent to Trump’s demands during his first term after he threatened the country with tariffs.

Then-President Andrés Manuel López Obrador agreed to let the Trump administration return tens of thousands of asylum-seekers – including migrants not from Mexico – to Mexican border cities to await their U.S. immigration court hearings. Trump has suggested he could revive that program, known as “Remain in Mexico,” in his second term.

If both Trump and Sheinbaum Pardo aim to play hard ball, it would mark a departure from 30 years of cooperation on trade that have intertwined the U.S. and Mexico economies in ways that could be difficult to undo.

For example, the seats that go into vehicles assembled at plants in the U.S. Midwest may first crisscross the U.S.-Mexico border seven or eight times as components are added on one side and the other, according to the Congressional Research Service.

Both countries face economic fallout if a trade war ensues.

U.S. voters have endured years of high inflation, which has cut into their earnings gains and made even a strong economy feel weak for many households. Economists say tariffs, which function like a tax on goods, are often passed on to consumers and can inflate prices. Price tags could go up on everything from avocados and tomatoes, to cars and computers.

But Mexico faces huge risks if it loses its preferential status with its most important trading partner.

While exports represent 13% of the United States’ GDP, exports underpin 38% of Mexico’s GDP, Wood said, and roughly 80% of Mexico’s exports go to the United States.

U.S. and global brands produce a wide range of goods in Mexico for export to the United States, under the free trade protections afforded by the U.S.-Mexico-Canada Agreement, or USMCA – a deal Trump negotiated and signed during his first term. Tariffs would violate the terms of that agreement, which is up for renegotiation in 2026.

Sheinbaum Pardo “is probably going to have to give a bit because tariffs would crater Mexico’s economy,” said Adam Isacson, director of defense oversight for the nonprofit Washington Office on Latin America.

Exacerbating the risks for Mexico, Trump has promised a “mass deportation,” and Mexicans make up an estimated 37% of immigrants living in the U.S. illegally, according to Pew Research. If they are massively deported, Mexico could see tens of thousands of its countrymen and women deported home without jobs, no longer able to send the remittances that keep many Mexican households afloat.

Regarding fentanyl trafficking to the U.S., Sheinbaum Pardo said in her letter to Trump that Mexico views the United States’ drug problem as a public health issue that needs to be dealt with in the U.S. Mexico’s government has long struggled to control the powerful criminal organizations operating in the country that push drugs north to U.S. consumers.

Mexico could do more on both migration and drug-trafficking, Wood said, including deploying more of its National Guard to the southern border, targeting illegal fentanyl labs and putting its Coast Guard and Marines to work interdicting illicit traffic in its waters.

But Mexico has also shown that when it eases its immigration enforcement, the U.S. can expect a humanitarian crisis at its southern border.

Sheinbaum Pardo’s response to Trump was “indignant,” Wood said, but Trump is “showing the United States has the power to impose costs on Mexico.”

(This story was updated to add new information.)