Nobody is happy about Donald Trump’s new threat to slap tariffs on Mexico unless it clamps down on migrants crossing the border. Well, almost nobody.
Investors? They’re panicking. Stocks are down. So are treasury yields, which is a sign that folks are worried and fleeing to safe assets. Mexico? What do you think? Republicans in Congress? Senate Finance Chair Chuck Grassley says the move is a “misuse of presidential tariff authority and counter to congressional intent.” The business lobby? It’s peeved. Trump’s own advisers? Some of them are reportedly furious. Specifically, Treasury Secretary Steve Mnuchin, a free trader, and U.S. Trade Rep. Robert Lighthizer, known for his protectionist streak, are both apparently opposed.
So who’s pleased? Presumably Stephen Miller, the spiritual keeper of this administration’s anti-immigrant flame. Like many of the Trump administration’s worst ideas, CNBC reports this Mexico one belonged to him. He apparently sprang the plan while Vice President Mike Pence was traveling and Larry Kudlow, the White House’s top economic adviser and another free trade advocate, was busy having surgery. It seems the adults went away for the week and Miller decided to throw a xenophobic rager that might sink the economy.
Up until very recently, I haven’t been too worried about the effect of Trump’s trade war on growth. Yes, his tariffs on China are a rather large tax on American businesses and consumers. But they’ve only slowed the economy a bit so far. Beijing’s retaliation has made life complicated for farmers, but they’re getting bailed out.
Now, though, I’m starting to feel anxious. Trump announced that on June 10, he plans to place a 5 percent tariff on all Mexican goods and leave it there “until such time as illegal migrants coming through Mexico, and into our Country, STOP.” According to the White House, the rate will rise to 10 percent by July 1 “if the crisis persists”—whatever the heck that means—then keep ratcheting up to 25 percent, unless the border situation is somehow resolved to the administration’s liking.
This could all be extremely disruptive to the U.S. economy—especially the auto industry, which relies on the ability to move cars and parts seamlessly and tariff-free back and forth across the southern border. Forget the cost of avocados and tomatoes: Trump is basically threatening to throw a bomb at GM and Ford’s North American supply chains.
It’s not clear he sees that as a bad thing. Some have wondered if this is just a bit of bluster; migration through Mexico tends to tail off in the summer, so it’s possible that Trump could make his tariff threat then declare victory based on that seasonal decline. But Trump also really seems to like imposing tariffs just for the sake of imposing tariffs, and while this move might risk blowing up the new version of NAFTA he negotiated, that deal was already stalling in Congress, so he might not be overly worried about that. Meanwhile, the president is tweeting about companies leaving Mexico.
It’s not just the Mexico tariffs themselves that have me worried, though. It’s the cumulative effect of everything Trump is up to at the moment, and his timing. He’s already placed 25 percent tariffs on $250 billion worth of Chinese goods, and as both sides of that conflict have dug in, he’s threatened to do the same on the remaining $300 billion of the country’s U.S. exports. Growth in U.S. business investment, meanwhile, was weak during the first quarter, and the U.S. Treasury yield curve was already inverted, which reliably tends to happen prior to a recession, and at least signals that investors are feeling pessimistic about growth. Oil prices have been taking a hit thanks to fears about global growth and demand, which, while good for drivers, could lead to further cutbacks on business investment by U.S. drillers.
It’s not hard to imagine us hitting a tipping point soon. Trump places his tariffs on our third largest trading partner, markets freak further, executives dial back their plans for investment—after all, nobody knows what the heck the global supply chain is going to look like—the auto industry staggers, and under the weight of it all, growth grinds to a crawl.
I’m not saying everything will necessarily go down that way. But I am saying the administration is on the verge of taking all the steps necessary to sabotage its own economy, all to keep desperate central American migrants from trying to claim asylum. Stephen Miller’s racism might just cause a recession.