Antitrust Lawyer Blog Commentary on Current Developments

Additional Tariffs on Mexican Imports: A “Creative” Approach to Both Immigration Policy and Negotiation Strategy that Will Likely Have Widespread Consequences

On May 30, 2019 President Trump announced via Twitter that the United States (U.S.) will impose tariffs on Mexican imports to prompt Mexico to significantly reduce immigration to the U.S.  President Trump will impose these additional tariffs in the context of rapidly increasing immigration from Mexico to the U.S. over the past months.

In declaring these new tariffs, President Trump relied on powers that Congress delegated to the president under the International Emergency Economic Powers Act (IEEPA) of 1977.   Congress enacted this statute to provide the president with the necessary authority to restrict transactions between U.S. persons and foreign entities located outside the U.S. that pose threats to U.S. national security interests.  Therefore, the president typically invokes IEEPA in sanctions matters (e.g. the Iranian, Syrian, and North Korean sanctions programs) and export control matters (e.g. regulations regarding transferring control of sensitive technology and information from a U.S. person to a foreign person).

The absence of language in IEEPA referring to “tariffs” or “immigration” combined with the stark contrast between this current invocation and past invocations of IEEPA have lead some scholars to believe that the use of this statute for imposing additional tariffs on Mexican imports may be illegal.  Members of President Trump’s own political party have expressed similar beliefs. For instance, Chuck Grassley, a Republican senator on the U.S. Finance Committee, has publically supported this view by saying that President Trump has exceeded his authority.

Regardless of whether the new tariffs on Mexican imports are legal, a five percent tariff will go into effect on Monday, June 10, 2019 on approximately $350 billion worth of Mexican imports.  Currently the U.S. and Mexican governments are in negotiations touching on immigration issues, but discussions do not appear immensely successful at this time. U.S. threats to increase tariffs on Mexican imports is certainly part of its negotiation strategy.  Mexico has stated that it will not be coerced into making immigration changes because of the U.S. threats, but President Trump likely hopes that Mexico may be more amenable to U.S. suggestions regarding immigration when faced with additional tariffs on Mexican imports.  However, if President Trump remains dissatisfied with Mexico’s commitment to and progress towards limiting immigration; negotiations between the U.S. and Mexico fail; and if a challenger fails to prove that President Trump acted outside of IEEPA’s delegation of power, tariffs on Mexican imports will likely increase by five percent each month until they reach twenty-five percent in October 2019.  The question of whether the tariff increases on Mexican imports will go into effect is present at negotiations between the U.S. and Mexico and will likely have an effect on the outcome of talks regardless of whether additional tariffs are imposed.

The new tariffs on Mexican imports will affect many U.S. consumers that rely on Mexican imports for everyday items. These Mexican imports subject to additional tariffs include automobiles (autos), auto parts, crude oil, and produce, to name a few.

With regards to autos, according to the Center on Auto Research, approximately forty percent of auto parts within the U.S. come from Mexico. Additionally, due to integrated North American supply chains, smaller auto parts are often incorporated into larger parts that travel across North American borders multiple times before finally becoming incorporated into a vehicle.  As a result, an auto part will likely be subject to these new tariffs on Mexican imports numerous times during the car production process. The additional tariffs on parts that typically across borders numerous times will make cars more expensive to produce and these additional costs will result in higher prices for consumersToyota predicts that additional tariffs on Mexican imports will increase the cost of auto parts for its top selling model, the midsized Tacoma, by approximately one billion dollars. These additional tariffs will also greatly affect Ford, an American multinational car company headquartered in Michigan, because seventeen percent of its cars are manufactured in Mexico.

The additional tariffs will also have detrimental impacts on smaller goods, like avocados and plastic products.  Currently a shortage of avocados from Mexico has resulted in U.S. consumers paying higher prices. These new tariffs, however, will likely cause the price of Mexican avocados within the U.S. to dramatically increase even further than current prices, which are already at a record high.  Additionally, the U.S. imports approximately $7 billion of plastic and plastic goods per year and U.S. consumers will likely notice increases in prices relating to plastic goods.  In short, U.S. consumers of large and small goods will likely be affected by these new tariffs on Mexican imports.

Persons inside the U.S. will also likely notice the effects of additional tariffs on Mexican imports at the gas pump and while traveling.   Mexico is the U.S.’s second largest foreign source of oil and supplies oil to major gasoline distributors, like Exxon and Valero.  These additional tariffs will also increase travel costs for many U.S. persons because heavy oil that oil refineries need to produce jet fuel often comes from Mexico due to sanctions against other large supplies, like Venezuela.

Additional tariffs on Mexican imports will likely have a negative effect on the economy.  Some have predicted that these recent tariffs and their associated rising costs will result in the loss of 400,000 American jobs (specifically in manufacturing and retail), significant rises in costs of goods, and even another recession.  Although economists are unable to predict the exact consequences of these additional tariffs on Mexican imports, these additional tariffs will likely have a strong negative impact on the U.S. economy if they fail to serve as a successful part of U.S. negotiations regarding immigration of persons from Mexico.