Trump’s Proposed Tariff on Mexican Exports Will Backfire

By George DeMartino

The new Trump proposal (now under consideration by his administration) to get Mexico to pay for the proposed wall along the Mexican border through a 20% tax on Mexican exports to the US violates a range of international trade laws, and is apt to generate retaliation by Mexico. Mexico’s right to retaliate is assured by the WTO, and so would survive any attempt by the Trump Administration to cancel NAFTA. That retaliation could hurt important sectors of the US economy given that Mexico now absorbs about 15% of total US exports. But in addition to the harms from retaliation (and from the wall itself), the funding proposal is likely to backfire in at least five ways.

  1. The incidence of the tax will fall heavily on and American firms at home that import from Mexico, American consumers, and American firms in Mexico that export to the US. US retailers will look to offset higher import costs by reducing other expenses, such as by shedding employees. So will firms that import inputs from Mexico for final assembly in the US. Here, too, pressure will mount to cut costs in ways that harm American workers. And for goods without immediate substitutes, like some agricultural goods, US consumers will be on the hook for a greater share of the tax. Despite appearances and Trump’s claims to the contrary, then, Americans will pay a substantial share of the costs for Trump’s wall. But don’t expect Trump to trouble himself with the basic math.
  1. For Mexican exports for which there are ready substitutes, Mexican and US firms producing in Mexico will bear a greater share of the tax in the form of reduced revenues as they struggle to maintain their exports to the US. But very soon Mexican exports to the US will decline as US importers look to buy from other countries. The decline would of course reduce the expected revenues from the tax, and trigger other unintended effects (see #5, below).
  1. President Trump will say that the tax will induce US companies producing in Mexico to relocate production and jobs back to the US. It is unlikely most will do so. If corporations in Mexico think the tax is likely to persist, they are more likely to move production to other low-waged countries than back to the US.
  1. In fact, if the tax persists for even a year or two, it is much more likely to accelerate a trend already under way—the substitution of Chinese for Mexican goods in US markets. China has posed a serious threat to Mexican exports of high-skilled and medium-skilled manufactured products for at least a decade. The Trump tax will only accelerate the trend. And so Chinese leaders are apt to be even happier about the tax (and, also, about the Trump wall) than are Trump supporters in the US. It’s not at all far-fetched to argue that the primary beneficiary of the tax on Mexican exports to the US will be China,followed by a small number of other low-waged countries that will rush to exploit the opportunity created by increased Mexican prices in the US market.
  1. The social impact in Mexico could be severe. Like most economic shocks, the tariff will hurt the most vulnerable communities rather than the administration of Mexican President Peña Nieto, who could very well begin to reverse his abysmal level of domestic support by standing up to Trump. To the degree that the Trump tax reduces Mexican exports, it can be expected to increase the number of financially desperate Mexican workers trying to enter the US—legally and illegally—and even push some displaced workers into illicit market activity. And so the Trump tax will undermine the very purpose for which it is intended—to reduce illegal border crossings—while harming working people on both sides of the wall.

George DeMartino is a Professor at the Josef Korbel School of International Studies, University of Denver

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Obama in Havana and Buenos Aires: Realism Confirmed or Idealism Revealed?

By: Tom Farer

Meditating a few months ago on President Obama’s refusal to intervene in Syria’s slaughterhouse, Steve Walt, a notable academic Realist, declared to his self-professed surprise that Obama had proven himself as much of a realist as Walt.

A defining policy reflex of academic realists is their insistence that hard power be reserved for the defense of core national security interests. As for democracy and human rights, the generality of academic realists urge that we be guided by John Quincy Adams’ dictum: However much we sympathize with other people’s oppression, we should not go abroad to slay dragons.

Despite his politically shrewd embrace of caution when addressing a war-weary electorate during the 2008 Presidential campaign, Obama’s professional history as an organizer of poor people, his manifest disinterest in grasping the immensely lucrative career open to a President of the Harvard Law Review, bespoke an idealist. And he was, after all, a liberal albeit not an exclamatory one and by the late Twentieth Century Liberalism and the defense of human rights as an end in itself were virtually synonymous.

Some of his first moves as President seemed to confirm my impression that we had elected a champion of human rights. I think, for example of Obama’s appointing the once iconic critic of American passivity in the face of overseas slaughter, Samantha Powers, to a senior position on the National Security Council and his creation of an interdepartmental unit tasked with putting cases of looming massive violations of human rights on the President’s radar screen. Nevertheless, until Omar Qaddafi sent his troops racing toward Benghazi with the stated purpose (stated by Qaddafi) of exterminating the opposition in the rebellious city, there remained the question of whether Obama’s concern for human rights would ever move him to defend them with hard power. He resolved that question by raining a brief but paralyzing barrage of US air and missile power on Qaddafi’s forces, then stood off while NATO allies, working with disparate anti-Qaddafi militias, finished the job of what proved to be regime’s end.

Meanwhile Syria erupted and it became evident, even before Libya turned into a fiasco, that for Obama Libya rather than being a precedent was a bridge just short of being too far. He clearly saw Syria as miles farther. Writing two years later I concluded “that people facing death at the hands of tyrannical governments who have the misfortune to live in countries where core national interests of the United States are not at stake, will find that prayer will do no less for them and possibly even more than the indispensable nation.”

I did not, however, conclude like Walt that Obama had become a Realist, much less that deep down he had always been one. Rather it seemed to me that the Iraq war had persuaded him that however pristine US intentions, for myriad reasons US military interventions in large complex countries without long-established democratic traditions or anything resembling a rule-of-law culture were likely to enhance the target population’s misery at great cost to the United States. The aftermath of Libya merely confirmed Obama’s conclusion.

On that premise a President committed to the promotion of democracy and human rights abroad would have to rely primarily on soft power, the power exemplified by his Easter trip to the Cuban-Argentine antipodes of Latin America. His visit to Havana culminates a two-year process of reversing a sixty-year American policy of facilitating totalitarian government 90 miles off the coast of Florida. Yes, I said “facilitating”.

Think of the effort North Korea invests in isolating its population from contact with the outside world and persuading its people that the country is under constant threat from the US and its southern neighbor. Leaning up against merely authoritarian and friendly China has helped. As he sought total control of Cuban lives, Fidel Castro faced far more serious obstacles than his North Korea counterpart, since he presided over a country so very close to the liberal democratic capitalist United States. In order to isolate his people, silence dissent and rationalize poverty, Fidel needed help and Washington conveniently provided it by cutting off both economic and human contact with the island and by declaring the intention of overthrowing its government.

All Obama really had to do was refuse to continue the policy of giving Fidel and his fellow oligarchs a helping hand. Its internal contradictions no longer softened by Chavez’s fraternal gifts of Venezuelan oil, to the end of self-preservation the regime was already beginning to loosen its quotidian grip when Obama made his first moves. But those moves are helping accelerate the process.

Obama in Havana did more than drive a final spike into the government-cultivated narrative of a country under siege from its giant neighbor. He also opened a window on what accountable government could mean by maneuvering grizzled old Raul into the alien experience of a press conference with independent journalists asking disagreeable questions. Chalk one up for soft power.

Cuba won’t be a free country tomorrow, but its long-suffering people already have more scope to realize a personal vision of the life they want to lead. Somewhere down the road Cuba will become a normal country where, as a conservative philosopher once put it, every person has the dignity of living his or her own potty little life.

From shabby Havana Obama flew to elegant Buenos Aires. Lying six thousand miles from Washington, rich in resources and human capital, although poor in the capacity for rational self-government, Argentina unlike Cuba has lived much nearer but still within the margin of US Government influence. Why Argentina and why now? Here too it seems to me Obama’s real concern for human rights helped shape the choice. The choice implied a celebration of democracy reaffirmed and quiet penance for the long years during which Washington supported state terror in Argentina, Chile, Salvador and other Latin countries.

Obama was meeting with a President, Mauricio Macri, who had won a fair election revolving around well-defined policy choices. And he would attend a popular gathering on the banks of the Plate River to memorialize the men and women murdered by the military government which ruled Argentina from 1976 to 1983.

Shortly after that government seized power and began disappearing into its torture centers anyone suspected of left-wing subversion, the then US Secretary of State, Henry Kissinger, had met with his Argentine counterpart, Admiral Guzzetti, and, according to a Memorandum of Conversation extracted from State Department files in 2004 through the Freedom of Information Act, Kissinger had said: “Look, our basic attitude is that we would like you to succeed. . .. I have an old-fashioned view that friends ought to be supported. What is not understood in the United States is that you have a civil war. We read about human rights problems, but not the context. . .. The quicker you succeed the better.”

The U.S. Ambassador to Argentina at that time, Robert Hill, hardly a liberal himself but concerned about the cruel intensity and indiscriminateness of the repression, had arranged the meeting in the expectation, apparently, that Kissinger would underline the Ambassador’s concerns already communicated to the military junta. When after the Kissinger-Guzzetti meeting Hill met with Argentine President Jorge Videla, a just-retired General, the latter dismissed Hill’s concerns according to a cable Hill subsequently sent to Washington. “The President,” Hill reported, “said he had been gratified when Guzzetti reported to him that secretary of state Kissinger understood their problem . . .”

Videla died in Prison. Prosecutions of lower-level killers continue to this day. Macri’s predecessors in the Presidential Palace, the Kirchners husband and wife, consolidated civilian control of the military by shrinking the armed forces and purging their hard liners.

Henry Kissinger reflects the hard-guy Jacksonian facet of American foreign policy culture and personifies the so-called “grand strategist” who observes humanity from so great a distance that individual faces are obscured. In his brief trip south Obama demonstrated that he is a very different sort of man.

Tom Farer is a University Professor at the Josef Korbel School of International Studies, University of Denver (2010-present) and former Dean of the Josef Korbel School (1996-2010). Learn more about the Latin America Center.