Making Sense of Trade Uncertainty Amid Trump Tariffs and NAFTA

Aug 22, 2018

From renegotiating NAFTA to President Trump’s trade war with China, trade continues to be a focal point in politics, news and even pop culture, as HBO comedian John Oliver explains tariffs on a recent episode of Last Week Tonight.

“Take tariffs. Trump once tweeted that if the trade war doesn’t end, other countries ‘will pay us vast sums of money in the form of Tariffs, we win either way.’ But that’s not how tariffs work. Tariffs are taxes designed to make foreign goods more expensive therefore making domestic products more appealing. Other countries don’t pay us tariffs. Importers here do when they receive the goods and they usually pass that cost along to the consumer so when Trump imposes a tariff on an item, you are probably going to pay more for it,” Oliver said.

Citing unfair trade practices and intellectual property theft from China, President Trump began imposing 25 percent tariffs on $50 billion in Chinese goods in July and proposed 25 percent tariffs on another $200 billion worth of Chinese imports. China, Canada, Mexico and the EU have retaliated with their own tariffs on U.S. agriculture, causing the Trump administration to provide $12 billion in emergency aid to farmers caught in the crossfire.

Trump’s tariffs of 25 percent on steel and 10 percent on aluminum have the automotive industry concerned as well. A July 2018 report by the Center for Automotive Research estimated the tariffs would raise the average price of a car sold in the U.S. between $980 and $4,400.

During a July visit to an Illinois steel mill reopening, President Trump claimed his steel and aluminum tariffs are helping bring back lost jobs and rebalancing unfair trade policies.

“Our trade deficit ballooned to $817 billion. Think of that. We lost $817 billion a year over the last number of years in trade. In other words if we didn’t trade, we’d save a hell of a lot of money,” Trump said.

Except that’s inaccurate. According to 2017 Census Bureau data, the U.S. recorded an $807 billion trade deficit in goods but had a trade surplus in services of $255 billion, totaling a net trade deficit of $552 billion. That means the U.S. has imported $552 billion more than it’s exported, which isn’t necessarily an economic negative.

Political and economic leaders from the U.S. and Mexico met at a recent border summit in El Paso to discuss international trade, including changes to the North American Free Trade Agreement. The summit’s keynote speaker, former Mexican president Ernesto Zedillo said NAFTA has been positive overall for the three participating countries.

Trade can be disruptive and sometimes in the process of opening up economies some people will be affected,” Zedillo said. “But the truth is that overall NAFTA has been a very successful undertaking. Certainly for my own country, certainly for Canada and I would claim strongly that certainly also for the United States because thanks to NAFTA, many American companies became globally competitive.”

President Trump has claimed on Twitter both that “Tariffs are the greatest!” and that “Trade wars are good, and easy to win.” Former U.S. Ambassador to Mexico James Jones disagrees with that assessment.

“I think we have to be very, very careful and not just willy-nilly put tariffs on because we think that will punish somebody else. And I think President Trump has not done that correctly. Clearly tariffs have a place, a role to play but it has to be done very selectively,” Jones said.

Imports and exports at the Santa Teresa Port of Entry in Santa Teresa, New Mexico totaled nearly $23 billion in 2017.
Credit U.S. Customs and Border Protection

Regionally, trade makes up a large portion of the Borderplex economy due to the Santa Teresa Port of Entry along New Mexico’s southern border. An August 2018 report by the Hunt Institute for Global Competitiveness at UTEP cites Santa Teresa exported $10.4 billion in goods in 2017 while importing $12.4 billion worth.

Executive Director Patrick Schaefer said most of that trade is computer-related machinery and parts from the Foxconn plant in Ciudad Juárez.

“And these computer related parts and machinery that we’re seeing going through that port of entry, import and export, are not really produced in New Mexico or Doña Ana County,” Schaefer said. “So the port of entry is in many ways supporting that maquila Foxconn to send the goods into the United States. But again, our region is not really capturing many of the value-added opportunities that we could have.”

Schafer said those opportunities include taking advantage of cross border energy flows and diversifying industrialization. While NAFTA has been critical to the Paso del Norte region, Schaefer said its uncertain future is having some impact on economic investment and social conditions.

Regardless of what happens next with NAFTA and Trump’s tariffs, trade is a complex issue that requires more research than this story or John Oliver can dedicate in a half hour.