Mexico tariffs: Exactly the wrong move for U.S. economy

By Thomas J. Donohue, CEO, U.S. Chamber of CommerceOpinionFOXBusiness

Mike Pence: Trump has ‘no timetable’ with Mexico

Vice President Mike Pence on the crisis at the U.S. southern border and President Trump’s threat to impose tariffs on Mexico.

On trade, the hits keep coming.

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The White House's plan to impose tariffs— starting at 5 percent on Monday and escalating to as much as 25 percent by October — on all goods imported from Mexico will throw a serious wrench into the gears of the American economy. This move will hike taxes on all Americans and undermine U.S. credibility on trade, while doing nothing to address the very real problems at the southern border.

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Mexico recently became our top U.S. trading partner—a partnership that supports economic growth and American jobs in every state. Last year, Americans imported more than $346 billion in goods from Mexico, with cars and auto parts, computer equipment, manufacturing inputs and agricultural products among the top products imported.

American manufacturers, farmers and small business all rely on trade with our southern neighbor to both supply input parts for manufactured goods and provide a destination market for finished products. We must preserve and strengthen this vital trade relationship rather than inflict self-harm through tariffs.

Taxes hiked

The 5 percent tariff represents a tax increase of approximately $17 billion on U.S. consumers and businesses. Should the tariff rate escalate to 25 percent, the tax on Americans would reach $86 billion, according to a Chamber analysis of Commerce Department data.

Even a 5 percent tariff will significantly disrupt trade flows, and the residual effects on the U.S. economy will be much worse—felt throughout the supply chain by both businesses and consumers across the country.

The big picture on U.S. trade is even bleaker. Combined with the existing and threatened tariffs on goods from China and other countries, the sum total of imports subjected to or under threat of tariffs has reached an astonishing $1 trillion.

That represents the biggest tax hike in nearly three decades, according to the Tax Foundation. Looked at another way, this action would erase all the benefits from the administration’s hard-fought tax cuts victory in the Tax Cuts and Jobs Act.

Competitiveness lost

Turning the U.S. into a high-tariff country is a sea change. Recently among the lowest in the world, U.S. tariffs are now higher than those of India—a nation long known as one of the least open major economies.

Given that about half of all U.S. imports are inputs, components and raw materials used by U.S. businesses, this surge in U.S. tariffs puts a major dent in U.S. competitiveness.

At the same time, half of America’s manufacturing output is exported to customers abroad. If input costs for those products soar due to tariffs, U.S. exporters will not be able to compete in global markets. They will lose sales to foreign competitors, which threatens jobs back here in the U.S.

Sidelined on trade

The move also introduces a major new hurdle to congressional approval of the U.S.-Mexico-Canada Agreement (USMCA), which the president has called his top legislative priority.

The Chamber has been working hard to build support for USMCA in Congress, and the termination of the tariffs on steel and aluminum from Canada and Mexico provided new momentum. But now, USMCA is stuck until this latest tariff threat is lifted.

Internationally, this could put a brake on all U.S. trade negotiations. During the USMCA negotiations, Mexico made difficult choices to move this new trade agreement forward with the U.S. But now, officials in other capitals around the world can see that negotiating a trade pact with the U.S. is no guarantee they’ll be spared tariffs. Who would want to negotiate with Washington under these circumstances?

Put simply, imposing tariffs on goods from Mexico is exactly the wrong move. Taxing American families and weakening our economy won’t do a thing to address the current migrant crisis at the border. It’s a non sequitur.

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The administration should instead work closely with Mexico and the Northern Triangle nations to address the flow of migrants. The president and Congress must work together on commonsense legislative reforms to improve border security, fix our nation’s broken legal immigration system and prevent these crises from occurring in the future.

Above all, the administration must immediately pull back this new tariff threat.

Thomas J. Donohue is CEO of the U.S. Chamber of Commerce.