Are the tariffs serious? Donald Trump threatened to impose a 5% tariff on Mexican exports on May 31, 2019 and did not apply it. He did not do it, we found out later, because he got the Mexican government to mobilize nearly 30,000 members of the National Guard to address a migration crisis that was occurring in one way in Mexican territory and in another way in the US media.
Trump’s threat then lasted just a week. On June 7, 2019, the president announced that there would be no tariffs. The mogul took full credit for resolving the Great Crisis and moved on to other issues, with the help of Fox, Breitbart News and social media.
This anecdote serves to fuel the optimism of some who think that in 2025 the script will be repeated and there will be no tariffs. We already saw that movie, they say; Trump is a pragmatist, we already know him and we know how to deal with him: he uses tariffs as a negotiating card.
Early June 2019. That moment was one of the most complicated in the bilateral relationship in the past six years. It is recovered by the Dutch insurer ING in an analysis note for its clients. With Trump you have to take into account the facts and not the words, he recommends. The recommendation of these experts sounds good, but it is not so easy to do the task with a demagogue. In times where the story shapes reality. Where do words end and actions begin?
Reality, story; facts, words. Expectations, fears, interests. It is quite a challenge to understand what Trump’s second term in the Presidency will be like. The first day was full of symbols: the technological millionaires kissing us; the deferential invitation towards the presidents of the Latin American right; Elon Musk’s fascist salute; the octagenarian president’s dance to the rhythm of Village People… The snow falling in Washington, DC, as if nature was shouting this is not Game of Thrones, but “Winter is coming.”
Trump signed 41 executive orders and returned to several of the issues he had mentioned in the campaign. One of them was the tariffs against Mexico and Canada. He said they would be 25%, higher than six years ago. We are facing a repeat of the May 2019 incident and can we deal with this bluff? To find a suitable answer, it would be worth including a couple of complementary questions: is Trump 2.0 the same as the one who governed between 2017 and 2021? Are there significant changes to your goals and strategies?
Trump is not the same; neither his country nor the world. Many things changed. Mexico was one of the big winners of the conflict between the United States and China. Many things have changed, but the economy continues to obey the laws of gravity. Tariffs against its neighbors and largest trading partners are absurd because they will produce inflation, slow the economy and make it impossible for Uncle Sam to compete with China.
The application of tariffs is absurd, but it makes sense when we see things through another lens: Trump is a protectionist. He understands that free trade generated a lot of wealth, but it also produced unemployment in the former industrial regions of his country. He does not see Mexico and Canada as two partners, but rather a pair of competitors. He wants the United States to reindustrialize. It has a public budget that is larger than Mexico’s GDP. He believes he can offset the harmful effects of tariffs with tax cuts and subsidies for businesses and consumers.
In the case of Mexico, Trump believes that it has been a mistake to treat the trade/economic agenda as something that should not be “contaminated” with migration and security issues. He likes tariffs because they reinforce the us versus you narrative. He is not Biden, he does not want to look like him. There is no place for Mexico in Make America Great Again. He knows that tariffs are a high-risk gamble, but he is a risk taker who enjoys adrenaline shots. His head is full of magical thoughts. Therefore, nothing should be ruled out. If the tariffs are applied, they would cost Mexico one point of GDP, according to Moody’s. If they stop being a bluff and are applied, they would cost more because they would damage the USMCA, the country’s greatest asset. Mexican economy. The first of February is near. “The winter is coming.”
