Last time Mexico put tariffs on the US, American farmers lost $1 billion

Steel tariffs= political points with Trump supporters minus economic losses.
Steel tariffs= political points with Trump supporters minus economic losses.
Image: Reutes/Joshua Roberts
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Mexico and Canada warned Donald Trump that letting political slogans dictate trade policy is dangerous economically. But their own responses to the steel and aluminum tariffs going into effect today has been political as well: Shortly after Trump announced the tariffs, Canada and Mexico announced their own politically-targeted taxes for US exports.

Trump has made trade a political issue since he was a presidential candidate. Economists point out that the tariffs defy economic logic. But politically, they are shorthand for the bygone era of American manufacturing might that Trump alludes to with his “Make America Great Again” slogan. That scores points with Trump’s supporters.

What won’t score points with Trump voters? The painful tariffs that Canada and Mexico will use to hurt Trump-leaning states like Wisconsin and Iowa. While Canada and Mexico had been able to largely ignore the president’s protectionist impulses when they were just rants, they are now being dragged down to Trump’s level.  

“The US has been the stabilizer of the global economy; now it may be the destabilizer,” said Eric Farnsworth, vice president at Council of the Americas, an international business group.

Revenge tariffs punish Trump strongholds

The tariffs, combined with the president’s belligerent rhetoric, make it impossible for Canada and Mexico to take the high road, economically speaking.

Mexican and Canadian officials admit that everyone loses from a trade war, but nevertheless characterized their own retaliatory tariffs as taking a political stand against Trump’s bullying on trade. They, too, have to cater to voters.

The list of products they are taxing has been carefully calibrated for maximum political impact, experts say. The idea is to squeeze states and sectors that can exert pressure on the White House, and/or hit Trump’s base. The tariffs are designed to get a quick reaction from those sectors, says Christopher Wilson, deputy director of the Wilson Center’s Mexico Institute. Their effects “will be immediate and fairly devastating.”

For example, in addition to steel, Mexico is targeting a variety of agricultural goods, from apples to hams. The plan, Mexican Economics minister Ildefonso Guajardo told Mexican radio on Thursday, was to identify products from congressional districts and states represented by elected officials who could influence Trump. Guajardo didn’t specify who, but one of those officials is likely house speaker Paul Ryan. His state of Wisconsin produces the bulk of American cranberries, which are on Mexico’s retaliatory list. On Thursday, Ryan said he was against the tariffs.

Mexico’s tariffs also appear to be targeting toss-up areas that could make or break Republican control in Congress during the November election, and Trump’s own reelection in 2020. Its taxes on pork products, for example, would hurt states such as Iowa and Minnesota, the US’s first and second biggest pork exporters. Trump flipped the first state by getting a little over half of the vote during the 2016 presidential election, and barely lost the second.

Jorge Guajardo, a former Mexican ambassador to China, says that kind of targeting could render results, particularly because it’s been applied not only by Mexico, but all other parties aggrieved by Trump’s trade policy: the European Union, Canada, and China “There will be a lot of pressure; the US could very quickly lose competitiveness, which can not be easily replaced,” he said.

A successful precedent

Mexico has practice in targeted retaliation. From 2009 to 2011, it imposed a series of tariffs on American products to push the US government to let Mexican truck drivers to bring their loads into the US. Although NAFTA allowed it, the US had refused to let them in.

So, Mexico tracked down the Congress members who had backed the ban and punished products in their states, says Guajardo, who was part of the administration that rolled out those measures. Over those two years, the Mexican government rotated those tariffs to ensure the pain was spread around, adds Council of the America’s Farnsworth.

The strategy eventually paid off. In 2011, the US agreed to open the border to certain Mexican truck drivers—not before costing American farmers a 22% drop in sales—equivalent to about a billion dollars—during the time the tariffs were in place, according to a 2016 analysis by several agricultural economists.

Given the results, the authors advised avoiding situations that may lead to retaliatory tariffs on US products. “US industry representatives may need to be prepared to repeat the old refrain, ‘They knew right where to hit us,’” they wrote.