MEXICO TARIFFS: TYPICAL TRUMP DISTRACTION TACTICS?

US stocks and global markets nosedived following President's Trump's threat to impose 5% tariffs on all Mexican imports from the 1st of June, and increase them by 5% every month, following tensions over immigration.

 

It comes as no surprise that markets have reacted this negatively given that Mexico is not just one of the US's biggest trading partners, but also a major manufacturing hub for key players in the global automobile industry.

 

Car manufacturers like General Motors, Mazda, Toyota, Honda, Nissan, Volkswagen and others, assemble cars in Mexico and then ship them to the US, making Mexico the second largest automobile manufacturing nation in the Western Hemisphere after the US.

Any tariffs by the US on goods from Mexico, therefore reverberates beyond just bilateral trade between the two countries - there major implications for global trade.

 

Trump is clearly unhappy with a spike in the number of economic migrants and refugees fleeing gang violence from mostly Central American countries like Guatemala, El Salvador and Honduras, arriving at the US-Mexico border.

President Trump wants Mexico to be more proactive in dealing with migrants and refugees who have to cross Mexico before they get to the US. Trump thinks Mexico is not doing enough to reduce the number of people getting to the border.

 

Whether it's possible for Mexico to completely stem the flow of migrants heading to the US is open to debate. However, what is of greater significance is why Trump has decided to tweet his threat of tariffs now.

 

Why now when the proposed US-Mexico-Canada Agreement (USMCA) that replaces the North American Free Trade Agreement (NAFTA) is awaiting ratification by legislators from all three countries?

 

During the last US presidential campaign, Trump described NAFTA as the worst trade deal in history, and he promised to pull out of it or renegotiate it. Negotiations have resulted in a new trade deal - USMCA, which represents an achievement for Trump that could boost his 2020 reelection bid.

 

Why would Trump want to undermine a trade achievement like USMCA with these tariffs? It doesn't add up.

Evidence suggests that one thing that concerns Trump above all else is the legitimacy of his presidency. That's why whenever he feels the heat from questions about Russian involvement in the 2016 presidential election, Trump always reacts aggressively. 

 

The Robert Mueller probe (into Russian interference in the 2016 election as well as possible conspiracy involving Trump's campaign team), was a target of furious tweeting from Trump throughout the 2-year investigation.

 

On Wednesday, Mueller resigned as the special counsel and formally closed down his office, which was set up by the US Department of Justice to investigate any Russian involvement in the election.

 

Mueller used his statement to clarify aspects of his 448 page report released in April, with a bombshell that could further undermine Trump's presidency. He said that if he and his team of investigators were able to clear the President (Trump) of criminal obstruction of justice, then he would have said so in his report. But he didn't.

 

The 'read-between-the-lines' take away from this part of his statement is that it was now up to the US Congress to take any appropriate action, including impeachment proceedings against the president.

 

Trump initially tried to contain the the fallout from Mueller's statement by resorting to his usual tactics of personal attacks, which were ineffective, given that Mueller is a widely respected public servant.

 

It appears Trump has now resorted to another one of his tactics, which is to use his tweets to change the narrative and direction of the the news. He has done this before.

As much as immigration is a bugbear for Trump, it's unlikely that he will impose tariffs on Mexico, knowing that such tariffs could inflict significant pain on the US economy given how interconnected the US's and Mexico's economies are.

 

Yes, Trump wants to appear tough on immigration to his base, but he is also counting on the Mexicans to blink first, and as expected they have. President Andres Manuel Lopez Obrador is sending a team to Washington and he is calling for diplomacy and dialogue to resolve the issue.

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