There is no justification that allows a government to raise tariff levels based on immigration levels. To take such a step means that the United States has decided that it will no longer bound by international trade rules. The early commentary on the Mexico decision has been nearly entirely focused on which companies in which sectors will be most at risk from an increase in tariffs by 5% on June 10, with additional increases monthly afterwards until every inbound product faces 25% tariffs by October 1. Such a damage assessment is important for firms that suddenly awoke to find themselves in the front lines of a new trade conflict that they did not anticipate. But it misses the larger point—everyone is affected by this decision. It is not just companies that ship goods from Mexico to the United States that should be paying attention. If the US proceeds down this path, it is the end of the global trade regime that has given stability and lowered risks for an increasingly larger share of companies and consumers since the 1940s.
While our primary focus has been on the evolution of the trade battle between the US and China, the conflict has widened. Late last week, the Trump administration announced the end of a temporary stay on the imposition of steel and aluminum tariffs for the European Union, Canada and Mexico. Starting at midnight on June 1, steel exports to the United States were slapped with 25% tariffs, and aluminum with 10% tariffs. US National Economic Advisor Larry Kudlow argues that the tariffs are simply a matter of a “family quarrel,” the imposition of new barriers on trade into the US shows the spread of conflict. There are at least four reasons why this is absolutely not just a minor issue. Kudlow has said that tariffs with Canada “may go on for a while or they may not.” For the firms that are suddenly paying significantly higher prices for imported steel and aluminum, it probably doesn’t much feel like a small argument. A 25% price hike overnight is sufficient to drive firms out of business entirely. Finding new sources of supply takes time, effort and probably escalated costs.