(President Donald Trump and Mexico’s President Pena Nieto Henry Romero Via Reuters)
When Donald Trump was running for the presidency, a large part of his campaign focused on boosting the US economy by reducing reliance on foreign products. Also, immigration. This year, he has made good this promise/threat by levying additional tariffs. His new policies seem to target certain nations – Canada, Mexico, and China for instance. Meanwhile, Germany was offered a zero-tax on car imports, but only if it’s mutual.
March and April centred mainly on the
China-US battlefront. Trump started it, but Xi fought back just as hard, and the trade war is spilling over into many facets of overseas share trading. Before the ‘war’ begun, imports from the EU faced an average tax of 3%. However, on May 31st, Trump announced a 10% tax on aluminium and a 25% tax on steel. The tariff covered imports from the EU, Mexico, and Canada.
Trouble in trading paradise
The European Union is the US’ greatest trading partner, followed by Canada in 2nd place, China in 3rd, and Mexico in 4th. Within a day of Trump’s announcement, Cecilia Malmström (Trade Commissioner for the EU) announced their plan to ‘rebalance’ the situation. Speculation was that the EU would pose retaliatory tariffs on American exports to the EU. These include jeans, bourbon, and motorcycles.
Meanwhile, on June 6th, Mexico announced tariffs on US cheese, pork, bourbon, apples, and other product including steel. Officials openly stated they were focusing on goods that are in heavy rotation in Republican ‘Trump supporter’ states. The new taxes were in the 20% to 25% range, and affect US goods worth 3 billion USD. The strategy targeted:
Indiana steel – Vice President Mike Pence
Florida motorboats – Senator Marco Rubio
Californian agricultural products – Congress Majority Leader Kevin McCarthy
Iowa pork – Republican congress members Joni Ernst and Chuck Grassley
Kentucky bourbon – Senate Majority Leader Mitch McConnel
Bad news for NAFTA
These goods are big sellers in Mexico, and Ildefonso Guajardo, the Mexican Minister for Economy, said they would resort to (cheaper) imports from Europe, because the tax would make US goods too expensive for Mexicans, gradually killing of their attractiveness, reducing the US market share, affecting the livelihoods of Trump supporters.
There was a plan for the North America Free Trade Agreement (NAFTA) talks to resolve the crisis. NAFTA covers US, Mexico, and Canada, serving all their interests as a single, trilateral trading bloc. However, Trump wants to negotiate with Canada and Mexico separately. Both nations are against this because they feel it beats the purpose of NAFTA and could undermine its role and trading position. It could break up NAFTA completely.