President Donald Trump said this past week he’s putting a 5 percent tariff on all Mexican imports. The action is an attempt to pressure Mexico to do more to crack down on the surge of Central American migrants trying to cross the U.S. border. But it’s also an action that threatens an agricultural economy already stressed by the China trade war and challenging weather.
U.S. Commerce Secretary Wilbur Ross met June 3 with Mexican Economy Minister Graciela Marquez and U.S. Agriculture Secretary Sonny Purdue hosted his Mexican counterpart Victor Villalobos.
“Mexico needs to be doing everything they can to be good neighbors and help with our humanitarian crisis on the southern border,” Purdue said in a statement after meeting with Villalobos.
Trump said the parties would try to work something out, but he continued to dangle the threat of tariffs to force Mexico’s hand.
“We’re going to see if we can do something. But I think it’s more likely that the tariffs go on,” he said from London, where he is on a state visit to Britain.
But Mexico said an agreement is likely to avoid the threatened 5 percent tariff, which will take effect June 10.
“By what we have seen so far, we will be able to reach an agreement,” Mexican Foreign Minister Marcelo Ebrard said.
Ebrard said his team will be prepared for a non-agreement scenario despite his optimism that a deal will be reached. Mexico calls the potential tariff hurtful to the economies of both countries and useless to slow the northbound flow of Central American migrants.
Trump claimed “millions of people” are entering the U.S. through Mexico and criticized congressional Democrats for not passing new laws.
“But even beyond the laws, Mexico should not allow millions of people to try and enter our country,” Trump said. “They could stop it very quickly. And I think they will. And if they won’t, we’re going to put tariffs on. I think that Mexico will step up and do what should have been done.”
It is unclear what more Mexico can do – and what will be enough – to satisfy Trump because the United States has not presented concrete benchmarks to assess whether the U.S. ally is sufficiently stemming the migrant flow from Central America.
Trump’s Republican allies warn that tariffs on Mexican imports will hit U.S. consumers, harm the economy and jeopardize the new United States-Mexico-Canada Agreement trade pact that the White House wants Congress to approve this year.
“We need to put our heads together and try to come up with a solution,” Texas Republican Sen. John Cornyn said.
Tom Sleight, U.S. Grains Council president and CEO, said, “At such a critical time for U.S. farmers, new talk of tariffs on Mexican products challenges the complex relationship we have with the top international buyer of U.S. grains and related products. We agree continued negotiations are the correct path to ensure stability in our markets, particularly as South American corn becomes a viable option for Mexican customers. As this political and market situation develops, we will remain in close touch with our stakeholders here at home and in Mexico to help maintain the stability of our longstanding partnership.”
Trump’s tariff threat came the same day Mexico’s government announced it would begin the ratification process of the new United States-Mexico-Canada Agreement – and less than two weeks after Mexico successfully negotiated the lifting of steel and aluminum tariffs from the United States that had been a roadblock to ratifying the new trade deal. The new agreement is now once again in jeopardy.
“The National Corn Growers Association strongly urges the president to rethink applying new tariffs to Mexican goods and to reconsider using tariffs to address non-trade issues,” said Lynn Chrisp, National Corn Growers Association president. “Mexico is the top customer for U.S. corn. Corn farmers want to continue working with the administration and Congress to ratify the new United States-Mexico-Canada Agreement and pursue new trade agreements. The recent deal to lift steel and aluminum tariffs on Mexico and Canada was an important breakthrough for (the agreement) but new tariffs threaten to reverse that progress. Amid a perfect storm of challenges in farm country, we cannot afford the uncertainty this action would bring.”
Mexico was the top market for U.S. corn in 2017-2018, he said, with corn and corn-product exports valued at $3.3 billion. Corn exports to Mexico reached a record of 15.7 million tons or 618 million bushels, an increase of almost 13 percent from 2016-2017. Mexico was also the top buyer of U.S. distiller’s dried grains with solubles, purchasing 2.13 million tons in 2017-2018 – an increase of 3 percent year-over-year.
The U.S. Wheat Associates and the National Association of Wheat Growers leaders say they are shocked and dismayed by Trump’s unilateral step to impose a 5 percent tariff on all Mexican goods imported by the United States. The action threatens to undermine approval of the U.S-Mexico-Canada Agreement, they said, and puts crucial wheat demand in Mexico at great risk.
“The potential fallout from new tariffs is like struggling to survive a flood (and) then getting hit by a tornado,” said Chris Kolstad, chairman of the U.S. Wheat Associates and a wheat farmer from Ledger, Montana.
Bad feelings abounded in Mexico after the president publicly threatened to withdraw from the North American Free Trade Agreement, he said, and imposed duties because certain Mexican products were called national-security risks to the United States. Mexico’s government and industries, including flour millers, set out to broaden their supply sources. Mexico in 2018 increased its total wheat imports significantly, but U.S. wheat imports actually declined that year.
“With progress on the United States-Mexico-Canada Agreement – most recently cancellation of the steel and aluminum tariffs – our customers in Mexico have been importing more U.S. wheat,” Kolstad said. “In a very disheartening coincidence, our organization is holding a conference next week with our Mexican customers partly to remind them how important they are to us. Of course the cost of the conference is funded by the Agricultural Trade Promotion program that was awarded because U.S. wheat farmers proved they were being hurt by retaliatory tariffs.”
Ben Scholz, president of the National Association of Wheat Growers and a wheat farmer from Lavon, Texas, said, “We call on the president to rescind this threat immediately. We’ve been hit by low prices; we’ve been hit by rain and flooding that is hurting what was an excellent wheat crop; and now we’ve been hit again by the actions of our own government. We need to end indiscriminate use of tariffs now, one way or another.”
But if Trump is not satisfied with Mexico’s actions, the 5 percent tariff figure will increase to 10 percent July 1, to 15 percent Aug. 1, to 20 percent Sept. 1 and to 25 percent Oct. 1, the White House said.
“Tariffs will permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory,” the statement read.
Stocks tumbled on Wall Street after Trump announced plans to expand the trade war to Mexico. The new tariffs on Mexican goods shocked investors who were already nervous about a global trade war crimping economic growth.
“Clearly the markets were blindsided and completely caught off guard,” said Cliff Hodge, director of investments for Cornerstone Wealth.
The major risk, he said, is that continued trade spats could bring on a global recession. Auto companies and agricultural companies will have a more difficult time passing costs off to consumers. Also investors are worried about further escalation of global trade spats.
“The fact that the president is willing to use tariffs as a weapon can really cause damage to business confidence,” Hodge said. “You’ve got to be wondering, who’s next?”
The Associated Press contributed to this story.