The next seven days will show us what the U.S.-México relationship will be like in the future. Next Monday, as we discussed yesterday, Donald Trump is intending to impose punitive tariffs on Mexican goods entering the United States. On Monday, the punitive tariff is expected to be five percent, increasing up to 25% over the next few months. Trump is imposing the tariffs to punish the Mexican government over the migrants crossing through México and reaching the US southern border.
The government of Andrés Manuel López Obrador, colloquially known as AMLO has dispatched negotiators to Washington. AMLO has stated that dialog, instead of tariffs should be used to resolve the differences between both nations.
During the next seven days, we will learn several things.
The first is whether the Republican leadership will coalesce to bring Donald Trump under control. Republican-controlled states and constituencies will be the first to suffer the economic consequences, whether the Mexican government retaliates or not. Higher prices on goods from México will impact the amount of trade that benefits states like Texas. The Texas economy depends on trade with México. Likewise, several strong constituencies like the automotive industry will also be affected down to the individual American worker.
Should México choose to retaliate with retaliatory tariffs then farmers will also be affected by Trump’s latest trade war.
But the most interesting thing to watch will be how AMLO reacts.
Both AMLO, and to a lesser extent the previous administration of Enrique Peña Nieto, believe that the best course of action for México was to avoid antagonizing Donald Trump. That has been typical of the Mexican leadership since NAFTA was adopted.
AMLO has been looking inward towards domestic issues. AMLO has indicated that he neither has the patience nor the need to have México engage in foreign diplomacy beyond traditional hands-off diplomacy. The last thing AMLO wants is to distract from his focus on domestic policy.
A trade war with America will economically hurt AMLO’s ability to deliver on his domestic agenda.
Donald Trump’s demand for the Mexican government to stop the migrants within México leaves AMLO with two options.
The first is to appease Donald Trump by either stopping the migrants from transiting through México. AMLO can either stop the migrants completely, or he can do enough to satisfy Trump’s need to create the illusion that his tirade worked so that he can appease his base.
Both of these options are dangerous for AMLO because it will embolden Donald Trump to use punitive tariffs every time Trump needs to distract from his problems. Other nations are also closely watching what the Mexican government does.
If AMLO were to capitulate to Trump, then other nations will now know that Donald Trump will use punitive tariffs for foreign policy or to distract from his political problems.
But AMLO does not want to get distracted by Trump’s tirades nor does AMLO want an economic problem as the result of Trump’s latest temper tantrum.
The other option for AMLO is to let the Trump administration know that AMLO will not allow himself to be subjugated by Trump to satisfy Trump’s political problems. To do so, the AMLO delegation needs to set the tone that the imposition of the punitive tariffs on Monday will not result in México doing more than it already does to interdict the migrants reaching the US border.
Any changes by the Mexican government towards that migrant caravans will be a clear capitulation by AMLO to Trump.
AMLO’s coalition, and his ability to deliver on his domestic problems may not weather any belief that he capitulated to Trump as Mexican patriotism within the population will generate anger towards AMLO domestically.
Unfortunately, Donald Trump cannot afford to backtrack on his threat to impose the tariffs without getting the perception that he got AMLO to do as Trump wants.
It is a typical Mexican standoff with AMLO on one side trying to keep the illusion that he won’t be dictated to by Trump and Trump on the other and hoping to show the world that he can use punitive tariffs to impose his will.
It will also be interesting to see how the Republicans will react. Much of that will depend on AMLO’s reactions over the next few days.
How this squabble is resolved will not matter on whether the USMCA will be adopted this year as it is likely that the Democrats will scuttle it and AMLO will not have the wherewithal politically to shepherd it through Mexico’s legislature.
Regardless of the outcome, the US-México relationship for the next year, or more will be determined in the next seven days.
