It’s the second time in recent weeks that Trump has shaken up trade negotiations with surprise tariffs. On May 5, he slapped 25 percent penalties on Chinese imports, upending trade talks between the United States and China that had seemed close to a deal and spurring retaliation from Beijing.
To understand how the new tariffs will ripple through the economy, here’s a guide to tariff basics.
Q: What is a tariff?
A: Tariffs are taxes a nation imposes on goods and services imported from another country. They are paid by companies that import the products, not by the countries themselves.
Q: Why does Trump want a tariff on Mexican goods?
A: Trump has said he is imposing the tax to punish Mexico for not doing enough to stop illegal immigration. Tens of thousands of Central Americans, mostly from Guatemala and Honduras and usually traveling with smugglers, journey through Mexico each month. U.S. officials say Mexico is not doing enough to secure its southern border with Guatemala or to crack down on the private bus companies that ferry migrants through the country, usually accompanied by their smugglers.
Last year, the U.S. imported $347 billion in goods from Mexico, making it one of the United States’ biggest trading partners. The tariffs would raise prices on Mexican goods and may compel American buyers to look elsewhere for some of those products, hurting Mexico’s economy.
Q: When do the tariffs go into effect?
A: Trump announced that the 5 percent tariff will take effect June 10. After that, the White House intends to raise the tax in 5-percentage-point increments each month until October, when the tariff would top out at 25 percent.
Q: What will Mexico do in response?
A: Mexican President Andrés Manuel López Obrador dispatched his foreign minister, Marcelo Ebrard, to Washington to try to broker a diplomatic solution. On Friday, Mexican officials announced they will meet with Secretary of State Mike Pompeo in Washington to defuse major trade conflicts. Ebrard tweeted that he would lead the Mexican delegation, while Secretary Pompeo would represent the U.S. side.
“The summit to resolve the U.S. dispute with our country will be on Wednesday in Washington,” Ebrard said. “We will be firm and defend the dignity of Mexico.”
Q: Who ultimately pays for these tariffs?
A: Although Trump often suggests that tariffs are paid by the countries they are imposed on, companies pay the tariffs when they import goods or services. Because few businesses can absorb these kinds of costs, they often end up passing them to the consumer in the form of higher prices, as National Economic Council Director Larry Kudlow acknowledged in May.
Q: What products are affected by the tariffs?
A: About two-thirds of U.S. imports from Mexico are intermediate parts — pieces that U.S. companies use to manufacture goods — according to Deutsche Bank Securities economist Torsten Slok. American automakers like General Motors and Ford and heavy equipment companies like Caterpillar use intermediate parts from Mexico, and their goods often cross the border multiple times as they are being assembled.
Computer and electronic components, wires and cables are among the most common intermediate parts. Many chemicals and raw materials, like oil and gold, also come in through the southern border.
The United States imports a great deal of produce from Mexico, including avocados, cauliflower, lettuce, pineapples and tomatoes. Mexico also supplies some of the best-selling beers in the United States, including Corona and Modelo Especial.
Q: How are tariffs supposed to address the flow of migrants at the U.S.-Mexico border?
A: The White House has yet to explain exactly how driving up the cost of Mexican goods could stem the flow of migration. Many experts say they believe the tariffs could actually have the opposite effect: If the tariffs damage the Mexican economy, more people may try to cross the border in search of work in the United States.
Q: How does this relate to China tariffs?
A: The tariffs Trump imposed on Mexico have no direct relation to the 25 percent tariffs Trump levied against Chinese imports. But both are instances of the president using tariffs as a brute-force negotiation tactic to deal with what he sees as a lack of progress on key issues.