Much Ado About Everything No 39: Mexico/US — Building a Wall and Digging a Hole?

Is Donald Trump digging himself into a deep hole with his threat of tariffs unless Mexico stops undocumented immigrants?

Even though the announcement is consistent with both his stance on immigration generally and the projection of him as a tough guy batting for America, I have to admit that I was taken totally by surprise when news of President Donald Trump's threat to impose trade tariffs on Mexico over illegal immigration broke on Friday morning (Hong Kong time). For starters, it appears to knock on the head two of my pet theories, ie that Donald Trump does not want to fight trade wars on two fronts simultaneously, and (b) that his strong focus on immigration was unlikely to throw up anything which would trouble financial markets.

Contrary to the initial reaction of the individual who broke the news to me, Mr Trump certainly does not hold all the cards, as Annie Karni et al make clear in an article for The New York Times. So, it is going to be very interesting seeing how he plays this going forward, especially given his threat to escalate tariffs incrementally to a whopping 25% and the damage which this would undoubtedly inflict on the US economy and, in all probability, on the personal economy of voters including among his all-important base.

I couldn't help but wonder initially if this was a spur of the moment action to knock Robert Mueller out of the news rather than a thought-through move especially since it is only a couple of weeks since he reached agreement with Mexico (and Canada) to annul steel and aluminium tariffs. I still think this could be the case. But, so far, I have been pretty impressed with the professionalism of his campaign team (in stark contrast to what we saw in 2016). So there may be some method in the move's apparent madness. Furthermore, if I remain correct in my assessment of Mr Trump's reluctance to fight trade wars on two fronts at once, maybe the move is indicative of his belief at least that he will strike an agreement with President Xi Jinping on trade (but NOT, note, technology) at the 28/29 June G20 summit. As Mr Trump himself is very fond of saying, we shall see.

One thing is clear, however; it will play very well with his base, at least unless or until they find themselves paying the consequent economic price out of their own pocket. For Mexico will no more pay these tariffs than China will pay the 25% with which Mr Trump has hit around half of its exports to the US. Or, indeed, than Mexico itself will pay for his beloved wall!

Alastair Newton

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