AP Explains: Trump’s threat to tax Mexican auto imports

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WASHINGTON | President Donald Trump is threatening to deploy his favorite weapon — import taxes — to pressure Mexico to do more to keep migrants and drugs from crossing into the United States.

Backing away from his vow to close America’s southern border, the president on Thursday and Friday promised instead that he’d slap tariffs on cars imported from Mexico if the illegal flow of people and narcotics doesn’t stop.

FILE- In this Feb. 21, 2014, file photo employees work in a Honda car plant in Celaya, in the central Mexican state of Guanajuato. Backing away from his vow to close America’s southern border, President Donald Trump on Thursday, April 4, 2019, and Friday promised instead that he’d slap tariffs on cars imported from Mexico if the illegal flow of people and narcotics doesn’t stop. (AP Photo/Eduardo Verdugo, File)

Analysts say the president likely has the legal power to make good on his threat. But it would be a big political gamble, risking a backlash from a Congress already wary of his combative trade policies and threatening the regional trade pact his own administration negotiated last year with Mexico and Canada. And it would badly disrupt the auto industry, which depends on supply chains that crisscross the U.S.-Mexico border.

“The whole thing is kind of bizarre, not something we’ve seen before,” said Gary Hufbauer, a trade specialist with the Peterson Institute for International Economics.

Here’s a closer look at Trump’s threat and how it might play out.

WHAT IS THE PRESIDENT THREATENING TO DO AND WHY?

Exasperated by his inability to keep migrants from entering the United States illegally, Trump initially declared that he was going to close America’s southern border. But White House advisers, leaders from border cities, economists and business groups warned that the shutdown would prove economically ruinous to both countries, disrupting the supply of goods across the border and driving up the price of everything from avocados to autos.

So Trump took a different tack. On Twitter Friday, he declared: “… if for any reason Mexico stops apprehending and bringing the illegals back to where they came, the U.S. will be forced to Tariff at 25% all cars made in Mexico and shipped over the Border to us. If that doesn’t work, which it will, I will close the Border.” Currently, Mexican autos enter the United States duty free.

CAN HE DO THAT?

Legally, yes. “He can do whatever the hell he wants,” Hufbauer said. Over the years, Congress has handed to the president much of its constitutional power over U.S. trade policy.

Trump can declare specific imports a threat to national security and tax them under Section 232 of the Trade Expansion Act of 1962 — something he’s already done to foreign steel and aluminum. He has broad power under Section 301 of the Trade Act of 1974, which Trump has cited to impose tariffs on tens of billions of dollars’ worth of Chinese imports, to slap sanctions on countries that have engaged in abusive trade practices. The Anti-Drug Abuse Act of 1986 allows the United States to punish with import taxes countries that don’t cooperate in the fight against illegal drugs. And the International Emergency Economic Powers Act of 1977 — “the big gun,” Hufbauer said — authorizes the president declare a national emergency and impose economic sanctions.

WON’T THERE BE POLITICAL FALLOUT?

Almost certainly. Congress acquiesced last year when Trump imposed tariffs on imported steel and aluminum, somewhat dubiously declaring them a threat to national security. But lawmakers are already on edge about Trump’s aggressive use of his powers and are considering legislation to reclaim some of their authority. Senate Finance Chairman Chuck Grassley, R-Iowa, for instance, is pushing a bill that would put a time limit on the president’s national security tariffs — unless Congress agreed to extend them.

“It takes a lot to budge Congress on these issues,” said Philip Levy, senior fellow at the Chicago Council on Global Affairs and a White House economist under President George W. Bush. “Autos could be the thing that does it.”

The U.S.-Mexico automotive trade is huge, and Trump’s proposed tariffs would hurt American companies that build cars in Mexico and ship them north. The United States last year imported a world-beating $52.6 billion worth of passenger vehicles and $32.5 billion worth of auto parts from Mexico.

“His base and Congress have given him a long leash on China and the steel and aluminum tariffs.’,” said Daniel Ujczo, a trade lawyer with Dickinson Wright PLLC in Columbus, Ohio. The tariff threat “may force Congress to proceed with legislation to take back tariffs authority from the President and perhaps do so with a veto-proof majority.”

WAIT. DIDN’T TRUMP JUST CUT A TRADE DEAL WITH MEXICO?

Yes. He calls the deal he negotiated last year the U.S.-Mexico-Canada Agreement, or USMCA. The Mexicans, well aware that Trump has repeatedly expressed enthusiasm for taxing auto imports, negotiated protection for their cars from Section 232 national-security tariffs.

The protection, contained in a so-called side letter, is already in effect even though the U.S., Canadian and Mexican legislatures have yet to ratify the USMCA. “In short, this is the exact scenario that the Mexican negotiating team predicted and secured protections from in the USMCA,” Ujczo said. “Mexico ‘Trump-and-Tweet-proofed’ its auto sector.”

Trump doesn’t see it that way. On Friday, Trump said that any tariffs would “supersede USMCA.”

But would the Mexicans ratify the Trump’s trade pact if he’s hitting their cars with 25% tariffs? And what would China, which is in intense trade talks with the United States, make of an administration that imposes harsh sanctions on a country with which it has just cut a big trade deal?

“What good is striking a deal with a guy who doesn’t like to obey deals?” Levy said. “Now it’s not about trade. It’s about immigration. It’s about drugs.” For Trump, “every question has the same answer: We need tariffs.”