JAKARTA (TheInsiderStories) – United States (US) President Donald Trump would impose a 5 percent tariff on June 10 for all goods entering from Mexico, unless it stopped the flow of illegal immigration to the country, a dramatic escalation of his border threats that could have sweeping implications for both economies.
The White House said it would increase the penalties to 10 percent on July 1, and then an additional 5 percent on the first day of each month for three months. The tariffs would stay at 25 percent until Mexico substantially stops the illegal inflow of aliens coming through its territory.
These raises many questions, whether this trade action is an appropriate remedy to address immigration, does US law, specifically, the International Emergency Economic Powers Act (IEEPA), even grant the President this authority?
Experts said it arguably yes, although Trump’s action is certainly vulnerable to legal challenge.
Legal Authority and Challenges
Holly Smith, lawyer and consultant based in Hong Kong said IEEPA grants the US President broad and sweeping powers that could certainly be interpreted to encompass imposing tariffs, although the IEEPA does not mention tariffs, duties, or import restrictions.
IEEPA allows the President, after declaring a national emergency, to deal with any “unusual and extraordinary threat” including by regulating transfers in foreign exchange, and importation and exportation of the relevant property.
On the other hand, the IEEPA does not specifically mention tariffs or other import restrictions, which could be a problem. The US Constitution gives Congress the authority to impose tariffs. When Congress has delegated this authority to the Executive Branch, it has done so with specificity.
Further, President Trump may try to rely on his declaration of a national emergency on illegal migration for authority under the IEEPA. If so, legal challenges could point to the fact that, in a bipartisan vote, Congress resolved to terminate this declaration, though Trump later vetoed the resolution.
Congress would likely disagree with the use of its borrowed tariff authority to remedy what it considers a non-emergency. If he makes a new declaration, Congress will have the opportunity to terminate it.
The Costs of this Action
If imposed, these tariffs will place a terrible burden on US importers, which will certainly be passed on to US consumers. According to a US Chamber of Commerce analysis, last year, the US imported US$346.5 billion of goods from Mexico, so a 5 percent tariff would amount to an annual tax increase of more than US$17 billion.
US exporters would also suffer, as Mexico would almost certainly retaliate by imposing its own tariffs on US exports. Many of these exporters are hurting already because of retaliatory tariffs imposed by China and other countries in response to Trump’s Section 232 and Section 301 tariffs.
Other costs may be harder to measure but no less significant. Uncertainty in trade relations will inhibit business operations. Businesses require predictability in trade relations in order to plan their operations and build stable, efficient supply chains.
With this action, Trump has introduced serious uncertainty in US business operations involving Mexico that depend on cross-border supply chains built over decades.
Businesses that might otherwise want to expand operations, invest in research and development, or hire new workers, will avoid doing so if they think they will now incur additional costs from tariffs or shifting supply chains.
Businesses that may have considered moving operations from China to Mexico to avoid tariffs might look elsewhere, with the knowledge that no location is necessarily safe from Trump’s tariffs.
Congress could curtail Presidential powers to apply tariffs or other import restrictions. This use of IEEPA may prompt them to act and any restrictions they place on Trump would also apply to future administrations.
Imposing tariffs in this context undermines the international trade system. This action undermines US credibility in current and future trade negotiations. Taking this action against a trading partner like Mexico, under authority like the IEEPA, sends dangerous signals about the US’ credibility in negotiations and as a trading partner.
If the US could do this to Mexico after just concluding a trade agreement, why would any country trust any agreement the Trump Administration makes? What incentive does a US negotiating partner have to open their markets or make permanent changes to their domestic laws to meet President Trump’s demands? And how will the US rebuild trust with its trading partners once Trump is out of office?
There is still time to avoid tariffs. Hopefully cooler heads in the US and Mexican governments will find a constructive approach unrelated to trade to address immigration challenges.
Written by Lexy Nantu, Email: email@example.com