Mexico tariffs will deal a blow to Trump's reelection chances

It is said that those whom the gods wish to destroy they first make mad.

Judging by President TrumpDonald John TrumpBiden says GOP senators have called to congratulate him Biden: Trump attending inauguration is 'of consequence' to the country Biden says family will avoid business conflicts MORE’s announcement that he intends to impose escalating import tariffs on Mexico, it would seem that the gods are wishing to destroy the president.

They wish to do so by inducing him make irrational economic policy decisions that will ensure a poorly performing U.S. economy ahead of the 2020 U.S. election. They also wish to do so by blinding the president to his electoral vulnerability to a faltering U.S. economy in the run up to that election.


Once again totally flouting World Trade Organization rules, President Trump is threatening to impose escalating import tariffs on Mexico unless that country commits itself to do more to stop the flow of illegal immigrants to the United States.

Beginning on June 10, these tariffs would start at 5 percent. However, they could be progressively escalated to as high as 25 percent if Mexico fails to cooperate with the U.S. on the immigration issue.

Some might argue that even if President Trump were to eventually impose a 25-percent import tariff on Mexico that could do little damage to the U.S. economy. After all, imports from Mexico amount to barely 1.5 percent of U.S. GDP. As such, at most, a 25-percent tariff would only add around 0.4 percent to the U.S. cost of living.

That line of reasoning misses two basic points. The first is that those tariffs could seriously disrupt U.S.-Mexican supply chains, especially in the all-important U.S. automobile industry. That in turn could deal a hefty blow to the U.S. automobile industry as well as do serious damage to the economy of Mexico, which is a major U.S. trade partner and which is already faltering.

The second and more important way that an import tariff on Mexico could damage the U.S. economy is that it could roil U.S. and global financial markets. It could do so by heightening market fears that the U.S. will not back down in its ongoing trade dispute with China and that that the U.S. could be leading us to a global trade war.


From a market point of view, President Trump’s threatened import tariffs on Mexico could not be more ill-timed. The threat comes at a time that global markets are already rattled by fears of a seeming escalation of a U.S. trade war with China, the world’s second-largest economy.

It also comes at a time that global markets are being unsettled by the prospects that in October the U.K. economy could crash out of Europe without a deal and that Italy could now be leading Europe to another and more serious round of its sovereign debt crisis.

Needless to add, President Trump’s arbitrary use of import tariffs in pursuit of narrow political goals could do much long-term damage to the global economy. It could do so by undermining the very structure of the open and rules-based international trade system that the U.S. helped build over the past 70 years.

In their seeming wish to destroy President Trump, the gods are blinding him to how (in much the same way as the 2008 Lehman Brothers crisis sank the rest of the global economy) a global financial market meltdown could derail the U.S. economic recovery well before the November 2020 U.S. presidential election.

They also seem to be blinding him to the truth that presidential elections are all too often about the economy, stupid.

Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund's Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.