The Totalitarian Temptation

The problems with migration are one thing; the problems with tariffs and their distortions are something quite different.

By the end of the day on Thursday, May 30, (and given the nature of the Trump administration, this may have gone in the opposite direction by the time this column reaches your hands) it was known that the U.S. president had threatened to impose special tariffs on all products coming from Mexico if that country did not introduce effective measures to halt the arrival of immigrants from Mexico as well as from Central America.*

The measure, intended to take effect on June 10, starts at a rate of 5%. It rises to 25% in October if Mexico does nothing or does not do enough. Who will determine whether Mexico has or has not done enough? Donald Trump, obviously, in his sole discretion and judgement.

On the other hand, if Mexico takes effective measures to reduce illegal immigration, Trump says that the tariffs will be eliminated. Mexico is the third largest trading partner of the United States, to which it sold $356 million worth of goods in 2018. And Trump showed his protectionist DNA again, saying that Mexican businesses would be able to avoid this increase in tariffs if they relocated their factories to the United States.

As if an increase in tariffs was something as permanent as making long-term investment decisions, and as if it were as simple as moving the location of a factory.

Something to take into account before continuing the analysis: According to the Office for Migration working with the United Nations, between January and August of 2018, Mexico deported more Central American nationals than the United States itself did.

But let’s go deeper: In the first place, the president’s decision – made without consulting Congress – to unilaterally increase tariffs on its trading partner, appears to be characteristic of an autocrat operating outside of the rule of law. Trump will no doubt invoke the authority of the International Emergency Economic Powers Act, but this is more characteristic of the regimes of Nicolás Maduro of Venezuela or Cristina Fernández de Kirchner of Argentina than of the rule of law that governs (or should govern) the United States. The problems with migration are one thing; the problems with tariffs are something quite different. Tariffs cause very serious distortions, not just for the Mexicans but for the U.S. economy itself.

In effect, this increase in tariffs will be paid for by U.S. importers, then by U.S. consumers. They will not get out of paying for this, as Trump thinks. This is also what he thought when he said that the Mexicans would pay for the wall he wants to build to separate the two countries, which luckily (for both countries) he has not succeeded in building. In Trump’s thinking, the tariff hurts the seller, whereas it is clear that it hurts the buyer, and it hurts the most when it is not possible to change suppliers in the short term.

But in his simplistic view of international commerce and job creation, Trump thinks that everything will be nicely sorted out with tariffs. That’s the way he got in trouble not only with Mexico but also in the trade war with China, the effects of which are extremely worrying. In fact, strangely enough, Trump’s views on international commerce, and on the limitations to be placed on it, are very similar, whether they like it or not, to the views of the Latin American left and, of course, to the views of the indigenous left. The left in Uruguay, in particular, starts to tremble every time a free trade agreement is discussed. They have succeeded in blocking Uruguayan president Tabaré Vazquez’s efforts, which are timid but are in the end attempts to open us more to the world.

But Trump’s proposed tariffs don’t just cause harm to the U.S. economy by increasing prices for imports and final products. They also introduce a change in the rules of the game that in no way favors the climate for negotiations or investment. Who will invest if today there are no tariffs on the products that come from Mexico, but tomorrow there may be, just because the president gets the idea that that is the best way to curb illegal immigration? And then later, perhaps, he goes back and lowers the tariffs because he thinks Mexico has done well. This lack of predictability is typical of the failed banana republics of Latin America, because of the absence of solid institutions, legal uncertainty and unpredictability in the rules of the game.

This is not the way it was when the United States was developing into the world’s most powerful country. And this is not the path followed by many other countries on their road to development. The first and fundamental thing is to repudiate the temptation to act in an authoritarian way, which does so much harm economically and politically. It is inappropriate for a nation of laws, and it must be embarrassing for a country that prides itself on strict adherence to the Constitution and the rule of law.

*Editor’s note: On June 7, President Trump backed off his plan to impose tariffs on all Mexican goods and announced that the U.S. had reached an agreement with Mexico to reduce the flow of migrants to the southern border.