10 Reasons Why Trump's Proposal to Use Tariffs to Punish Mexico Over Immigration Is Faulty (and Even Dangerous)

Trump simply can't help himself. He is threatening another country with tariffs, except this time, he is threatening Mexico. I thought Trump stirring the pot with 25 percent tariffs on $200 billion worth of Chinese imports was bad enough. Now he is threatening an ally with tariffs because he is dissatisfied with the migration surge on the U.S.-Mexico border. What Trump announced last Thursday was an intention to implement a series of phased tariffs, starting at 5 percent effective June 10, and making their way up to 25 percent by October...unless Mexico can contain the mess, that is. It should be no secret by now that I strongly dislike tariffs, but for the purposes of laying out a cogent argument, let's go into the myriad of reasons, ten to be exact, as to why Trump extending his trade war to Mexico would be a bad idea.

1. U.S. tariffs imposed on foreign goods are a tax paid by American consumers. As recent as Sunday has the Trump administration asserted that U.S. consumers will not pay the burden of these tariffs. I have news for you: that's not how the economics of tariffs works. Under standard microeconomic theory, two parties lose economic welfare under a tariff: foreign producers and domestic consumers. More to the point, a study released from Princeton University earlier this year confirmed that the burden of Trump's enacted tariffs falls on the American consumer (Amiti et al., 2019). 
2. Trump's trade war has already cost the American people, and will continue to do so. The authors of the previously mentioned Princeton study released an update on May 23 with the latest figures on consumer burden. What did they find? Trump's tariffs cost the average American household $811 a year. Additionally, his tariff on washing machines alone cost the American people $1.5 billion in 2018 (Flaaen et al., 2019). If you need a sense of where prices will increase, here are a few major goods that the U.S. imports from Mexico: produce, alcohol, television sets, monitors, fuel (especially crude oil), medical instruments, rubber, and automobiles. This gets more complicated considering how many raw materials, components, intermediate goods the United States imports from other countries, including Mexico. Imagine the combined effects of the already-existing tariffs with tariffs on Mexico, the country that recently became the United States' number one trading partner. Such tariffs would have a ripple effect that would be felt by Americans across the country.
3. Trump is undermining his own trade deal and trade relations with Mexico. In November 2018, the presidents of Mexico, Canada, and the United States have signed USMCA, which is Trump's version of NAFTA that is slightly worse than the original. The legislative branches of the three countries have yet to sign it. I'm not a master of "The Art of the Deal" like Trump is, but I can take an educated guess that this will affect the likelihood that USMCA is ratified by the Mexican legislature. Senator Chuck Grassley (R-IA), a senior Republican Senator on the Senate Finance Committee, also thinks that this move threatens USMCA. If USMCA doesn't pass, Trump would be shooting himself in the foot because reforming NAFTA was one of his major 2016 presidential campaign promises. This could also undermine his own reelection in 2020 if the trade war spirals out of control.  Trump's tariffs on Mexico beg another question: Why have a trade agreement to eliminate tariffs if Trump is going to impose tariffs anyways? Mexico may or may not acquiesce, but it certainly puts strain on U.S.-Mexican relations.  
4. Tariffs on Mexico would affect trade relations with China. You might be wondering how relations with Mexico would possibly have any bearing on Sino-American trade relations, but bear with me for a moment. China is already skeptical of Trump based on their dealings with him. China's skepticism has increased since Trump exacerbated U.S.-Mexican trade relations. Trump promised back in late 2018 that he would remove the global steel and aluminum tariffs (another bad idea) provided Canada and Mexico signed USMCA. He didn't get around to removing those tariffs until only about three weeks ago, and that was even done under considerable pressure. Instead, Trump intends to go against the terms of the free-trade agreement and impose tariffs on imported Mexican goods. If Trump cannot honor a signed international agreement, how could you expect him to keep his word with China?
5. Trump is eroding diplomatic relations with all countries. The effects of Trump's tariffs on Mexico go well beyond Mexico, as the Council on Foreign Relations illustrates. For one, other countries will be hesitant negotiate trade agreement terms with Trump because all he has shown is that he is willing to break his promises on a whim. The second issue has to do with the International Emergency Economic Powers Act (IEEPA). As the Peterson Institute shows in its report on trade agendas in the 2016 presidential campaign, the IEEPA was meant to impose economic sanctions when "unusual and extraordinary threats" merit it. If the IEEPA turns into a tariff free-for-all, not only has Congress' authority been severely undermined, but it sends the message that the United States (or at least the Trump administration does not care about rule of law, which opens a Pandora's box on international cooperation. 
6. Trump's tariffs on Mexico are going to negatively impact the global economy. One thing I have learned as being a market research professionally is that the one thing that businesses hate even more than regulation is uncertainty. As illustrated above, Trump is creating plenty of trade uncertainty. This trade uncertainty has negative consequences, including deterring investment (Davis, 2018; Krol, 2018), reducing consumer welfare (Handley and Limao, 2017), lowering economic activity (Kliesen, 2013), and adversely affecting stock returns (Bianconi et al., 2019). This past Sunday, multinational investment bank Morgan Stanley predicted a recession within the next nine months if Trump escalates his trade war any further. 
7. "Illegal Immigration" has been declining. In his statement on Thursday, Trump mentions the "sustained influx of illegal immigrants [that] has profound consequences on every aspect of our life." It is true that there has been an influx of border apprehensions in 2019. In spite of the influx, the number of apprehensions throughout the first six months of the government's fiscal year 2019 (i.e., October 2018-March 2019) remain below historical highs for the first half of the fiscal year (Pew Research). Additionally, Trump should realize is that the unauthorized immigrant population has been on the decline for over a decade, from 12.2 million in 2007 to 10.7 million in 2016 (Pew Research). Tariffs won't do anything to deal with this influx, and as the Cato Institute illustrates, it could backfire and increase the immigration across the border. 
8. The influx of border crossings is not about "illegal immigration," but refugees. The reason for the aforementioned influx is largely not due to undocumented immigrants/"illegal immigration", but rather due to asylum seekers. In recent years, Guatemala (along with Honduras and El Salvador) has been plagued with gang warfare and violence that is so extreme that it has made it one of the most unsafe places on the planet. This humanitarian crisis has resulted in a number of Guatemalans fleeing their country in search of a better life. Not only is the right of asylum something that dates back to the ancient Greeks and Egyptians, but it is also covered under Article 14 of the Universal Declaration of Human Rights, the 1951 Convention Relating to the Status of Refugees (the U.S. is not a signatory on this Convention), and the 1967 Protocol Relating to the Status of Refugees. Trump should not be playing this as an issue with "illegal immigration," and he certainly shouldn't be treating refugees as a national security threat, which he has erroneously done in the past.  
9. Undocumented immigrants are not the problem Trump makes them out to be. Even if Trump's claim about "illegal immigration on the rise" were true, it wouldn't matter. As I have covered when asking whether we should have a border wall, undocumented immigrants are not a net fiscal drain, they are not more likely to commit crimes (see 2019 Cato Institute report here), and they actually pay taxes. More generally speaking, low-skilled labor benefits the U.S. economy. If you're worried about "making sure immigrants coming in the legal way," advocate for policies that fix the broken system and cut through the red tape. The Cato Institute provides some ideas here.
10. Trump's demands are unrealistic and hypocritical. If the United States, the most powerful country on the planet, cannot handle the issue, what does Trump expect Mexico to do? Mexico already put up a border wall of sorts (also known as a containment belt) in March because there are a number of Guatemalan refugees applying for asylum in Mexico. It's clear that the Trump administration does not know the answer to the question because its press release does not go beyond "Mexico should do something about it." Plus, he expects Mexico to figure it out and solve it in a matter of weeks. As Reason Magazine astutely points out, "Mexican officials are being told to fix a problem they didn't cause, to do it in a matter of weeks, and without knowing how their performance will be measured." 

Postscript
I view Trump's trade wars as if Trump had a hammer and all he saw were nails, except the hammer in this case are tariffs and the only toolkit in his toolbox is a rusty hammer. Trump is taking that hammer, trying to fight an imaginary war on "illegal immigration," when in fact, he has swung that hammer at an ally that is vital to American interests. I'm sure Trump thinks he is doing the country a favor by combining his two key issues (trade and immigration), but all he is doing is harming the global economy while screwing over the people he purports to help: the American people.