“We don’t know what the goal line looks like for this one - only the president does,” said Chad Hart, associate professor of economics and crop markets specialist at Iowa State University.
President Donald Trump on May 30 announced a new 5 percent tariff on all Mexican imports that will go into effect on June 10 if Mexico does not comply with his immigration demands.
“All we know is that tariffs will go in place and we know that they will escalate as time goes on if Mexico does not do what the president is looking for, but the problem is no one knows what exact changes the president wants,” Hart said. “Whether to make these tariffs go away – that’s all up to President Trump.”
If Trump does not call off the tariffs, they will increase by 5 percent on the first of each month through October and reach 25 percent.
The new tariffs could affect the ratification of the United States Mexico Canada Agreement (USMCA), which must be approved by Congress to take effect.
“We had cleared out the space for the ratification process for the USMCA to begin and just as that got cleared out this latest bomb dropped,” Hart said. “It definitely does complicate the politics both here in the U.S. and in Mexico in terms of reaching ratification of USMCA.”
Almost no one saw the new tariffs coming.
“The president pulled the trigger on this and I think caught a lot of his allies – both within his party and within the negotiations to get USMCA ratified - off guard with this announcement,” Hart said.
In recent months, trade relations between the United States, Mexico and Canada had seemed to be returning to normal.
On May 17, the United States lifted steel and aluminum tariffs on Canada and Mexico.
At the same time, trade negotiations with China stalled and the Trump administration raised tariffs on $200 billion of Chinese products from 10 percent to 25 percent on May 31.
“In the case of the U.S. and China all things seem to point to that it was China that pulled back on agreed changes that caused that – but here pretty much all eyes are on us,” Hart said.
The United States is in danger of being seen as an inconsistent trading partner in the future, he noted.
“You never know when an issue is suddenly going to come out of left field to disrupt the trade negotiations,” he said. “He (Trump) likes to use uncertainty, hopefully to his advantage, but it also comes with a cost and that cost is that the uncertainly leads to worries about reliability within the trade relationship.”
The tariffs will be paid by consumers in the United States, Hart said.
How Mexico will respond is the other shoe that has not dropped, he said.
“Will we see, as we did with steel and aluminum, where they fought back with retaliatory tariffs - and where might those tariffs land?” he said. “These are tariffs across the board, impacting all products crossing the border. The question is - will Mexico turn around and retaliate in that same fashion?”
A response by Mexico will impact the ability of the United States to export bulk commodities, of which Mexico is one of the biggest buyers.
“We could be in a mess,” Hart said. “Does it jeopardize the ability to reach that (USMCA) agreement and, if so, what does that mean long-term for U.S.-Mexico trade relations? For the past 25 years both countries have lived under NAFTA and the idea is that USMCA is the next step through NAFTA. If that is not ratified, where do we go from here with that trade relationship?”
The current period is critical for agriculture in the United States, he said.
“With the ongoing fight already going with China, you hate to have two of your three major agriculture trading partners being adversaries in trade wars,” Hart said.
He is worried that the Trump administration could use this tactic in other areas, which would continue to cause problems in agriculture.
“Typically we like to keep issues each in their own lane,” he said. “This is one where president Trump has really cross-wired two policies that are both contentious right now and it sets a precedent for others to do the same thing.”
Hart said when he speaks at ISU Extension events he often asks the audience to imagine if the situation were reversed.
“Imagine if Mexico had done this to us,” Hart said. “How would we react? Don’t be surprised if they fight back like we would.”
He said he would look for clarity from the Trump administration following meetings with trade representatives from Mexico this week.
“One of the things I’m watching here is how the president signals what he’s willing to accept in terms of policy adjustment from Mexico in order to avoid these tariffs,” Hart said.