Mexico may have reason to fear Donald Trump’s tough talk on trade.
While on the campaign trail, the president-elect threatened to impose a 35 percent tariff on some products imported from Mexico into the United States — as well as to renegotiate more-favorable terms in the North American Free Trade Agreement, a free-trade pact among the United States, Canada and Mexico.
In the days following Trump’s election, Mexico's economic minister declined to speculate on whether the United States might follow through on imposing 35 percent tariffs on the country. “We can't anticipate anything, because we'd be anticipating something that wouldn't suit anybody, which is a trade war,” said the minister, Ildefonso Guajardo. Yet Guajardo also said that Mexico would be willing to discuss NAFTA with the U.S. president and explain the pact's strategic importance to him.
The tone was far more conciliatory than the statements that have emerged from China. Trump has threatened to label the country a currency manipulator in his first day in office and impose a 45 percent tariff on products imported from the country.
In an editorial published Sunday, a state-run Chinese newspaper argued, “Making things difficult for China politically will do [Trump] no good.”
The editorial vowed tit-for-tat countermeasures against the broad range of American businesses that count China as one of their largest export markets. “A batch of Boeing orders will be replaced by Airbus,” the state-run Global Times said. “U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the U.S.”
It makes sense that China might take a tougher stand against Trump than Mexico. These days, the U.S. accounts for only about 18 percent of China's exports, compared with 73 percent of Mexico's.
As the chart below shows, the United States accounted for 73 percent of Mexico’s exports and 51 percent of its imports in 2014, while Mexico accounted for only about 13 percent of U.S. exports and imports.
For China, in comparison, the United States accounted for 18 percent of the country's exports and 8.8 percent of its imports in 2014. China accounted for 9.2 percent of U.S. exports and 20 percent of its total imports.
Even the smallest of these percentages represent a massive volume of trade. But while a dislocation from the U.S. export market would be highly damaging the Chinese economy, it could be catastrophic for Mexico.
“It’s a question of your alternatives to negotiating,” said Daniel Shapiro, director of the Harvard International Negotiation Program and author of “Negotiating the Nonnegotiable.”
“For Mexico, they arguably can’t walk away without doing substantial damage to their economy. . . They are in a less powerful position than the U.S.,” he said. “With China, their alternative to negotiating with the U.S. . . . is maybe investing in other European countries or elsewhere. It’s still a big deal, but they are more powerful because they are less dependent on the U.S. in that negotiation.”
Years ago, it might have seemed unlikely that the United States would follow through with any policies that could trigger a trade war. But the strength of Trump’s anti-trade mandate, Britain’s surprise exit from the European Union and the rise of far-right parties around the world have made the intellectual elite question some assumptions.
Still, economists agree that any trade wars the United States starts or stumbles into could be devastating to the American economy as well. About $118 billion in cars and auto parts moved tariff-free between the United States and Mexico last year, according to the Commerce Department. If a tariff were imposed, it would take years for companies to rebuild their global supply chains. In the meantime, U.S. consumers would pay significantly higher prices for daily purchases.
Shapiro said that while U.S. trade measures against Mexico would hurt the Mexican economy, “the opposite is true, too. If the U.S. does not negotiate an agreement with Mexico, what is our best alternative? Are there enough factories readily available and suppliers to make up the lost supplies?”
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