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Tariffs on Mexico? That Could Result in Trump’s Nightmare
A robust economy south of the border has meant fewer Mexicans leaving their country.
By María Fernanda Pérez Arguello and Nicolás Albertoni
Ms. Pérez Arguello and Mr. Albertoni are experts on trade policy and Latin America.
On Friday, June 7 President Trump announced that a deal had been reached with Mexico to address the problem of migration flows from Central America. The agreement means that Mr. Trump will indefinitely suspend what would have been an extraordinary imposition of escalating tariffs on Mexico, the United States’ number one trading partner in the first quarter of 2019.
A manufactured tariff crisis has been averted — for now. While the president weathered Republican discontent over the tariff threat, he emerged with more political capital than he had before. But Mexico and United States allies know that this president tends to call plays more than once. On Sunday, June 9 he reiterated that tariffs remain on the table, should Mexico fail to stop border crossings.
Without clear goal posts to avoid future tariffs, and without a clear path for the United States-Mexico-Canada Agreement, or U.S.M.C.A., to make it through Congress, the Mexican economy is darkening under a cloud of uncertainty. People migrate away from weakening economies and lack of economic opportunities. Tariffs lead to more migrants; tariff threats make migrants too.
Mexican migration to the United States today is minimal. The number of Mexican apprehensions at the southern border decreased by 81 percent from 2007 to 2018 despite a few peaks, notably in 2013. Likewise, the number of unauthorized Mexicans living in the U.S. has declined by more than one million since 2007. A recent Pew study shows that the number of number of unauthorized Mexican immigrants in 2017 were at historic lows.
A robust Mexican economy, a steadily increasing gross domestic product, or GDP, per capita, and declining birthrates have meant that fewer and fewer Mexicans want to or need to leave Mexico. When the Mexican economy slows, more Mexicans come to the United States. That was the case in 2013 when the economy slowed to half the growth rate of previous years, and Mexican migration surged.
Mexico’s economy is fragile at the moment. It contracted in the first quarter of 2019. A 5 percent tariff would have cost Mexico over 1.2 million jobs. On June 5, two of three credit agencies downgraded Mexico’s sovereign debt, in part because the mounting external trade tensions. A day later, Fitch, a credit-rating agency, downgraded Pemex, Mexico’s state oil company, to “junk, with a negative outlook.”
These worsening conditions mean reduced market stability and predictability, less foreign direct investment, and fewer economic opportunities for citizens. These are the perfect ingredients for a surge in migration. Additionally, Mexico’s absorption of Central American migrants while they wait for asylum hearings has already put a strain on local Mexican state’s resources and created social tensions with the locals, in many cases fueled by Mr. Trump’s rhetoric.
It is still unclear how Mexico will pay for the deployment of 6,000 soldiers to the Southern border. President Lopez Obrador reiterated last week that the former presidential plane, which was acquired in 2012 for over $200 million, would be sold along with more than 100 other government aircrafts. The money would help pay for the country’s responsibilities under the new migration plan.
Studies show that surpassing $8,000 GDP per capita has a strong statistical correlation with lower levels of economic migration. GDP per capita in Honduras did not reach $5,000 in 2017. Guatemala and El Salvador have recently surpassed the $8,000 mark, and economic migration out of El Salvador has slowed.
In the Northern Triangle countries, to leave or not to leave is many times a question of survival. United States foreign assistance to these countries used to target the strengthening of institutions that provide safety and security. Over the last few years, progress was mounting. But with foreign aid cuts official as of June 17, 2019, all progress will be undone and the refugee migration could be exacerbated.
President Trump seems to believe that cutting aid to the Northern Triangle, just like threatening tariffs on Mexico, are diplomatic maneuvers to motivate governments to restrain migration, a problem that knows no borders. The reality is quite the opposite. Defunding law-enforcement and other assistance in the Northern Triangle will accelerate refugee migration from Central America and marring the Mexican economy in trade uncertainty will only accelerate economic migration from Mexico.
Mr. Trump has put the burden of the border problem on Mexico and threatened to punish Mexico if they can’t stop the flow of migrants from Central America to the United States border. While economic sanctions are a common diplomatic tool, never in history have they been aimed at a country’s top trading partner.
Placing blanket tariffs on our closest ally will not deter migration, nor will it help ameliorate the situation in Central America. Tariffs and tariff threats result in President Trump’s nightmare: more immigrants from Mexico.
Maria Fernanda Perez Arguello, @mfperezcr, is an associate director with the Adrienne Arsht Latin America Center at the Atlantic Council, where she works on Mexico, U.S.M.C.A., Central America, and anti-corruption. Follow her on Twitter
Nicolas Albertoni, @N_Albertoni, is the head researcher of the Trade Policy Project with The Security and Political Economy (SPEC) Lab at the University of Southern California.
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