Trump’s tariffs threat to Mexico, Canada is likely a bluff. If it’s not, he’s nuts

Andres Oppenheimer

After an extensive interview with one of the people who best knows President-elect Trump’s negotiating tactics, I’m more convinced than ever that the former president’s threat to impose huge tariffs on Mexican and Canadian goods — even if it means driving up U.S. consumer prices — should not be taken too seriously.

I called Ildefonso Guajardo, Mexico’s former secretary of economy and top trade negotiator, a few days after Trump announced he will impose a 25% tax on Mexican and Canadian products “on day one” of his presidency unless the two countries stop the flow of migrants and fentanyl to the United States. Trump’s salvo triggered immediate fears of a trade war, because Mexico and Canada are the biggest U.S. trading partners in the world.

But Guajardo, who headed the Mexican team that negotiated a revision of the U.S.-Mexico-Canada free trade agreement in 2018, does not seem to be losing much sleep over a trade Armageddon in North America. To him, Trump’s newest tariff threat looks like a movie he has seen before, and from a front row seat.

Trump has a long history of empty threats. On June 16, 2016, Trump said that “I will build a great, great wall on our southern border, and I will make Mexico pay for that wall. Mark my words.” But Trump never built his wall, nor did Mexico pay for it.

During his four years in office, Trump only extended the wall along the 2,000-mile border by three miles, from 654 to 656 miles, according to the Politifact fact-checking site. Most of what was done during the Trump administration was renewing existing parts of the wall.

“Trump has shown in his first term in office that he uses these kinds of threats as a negotiating tactic,” Guajardo told me.

Mexico’s former top trade negotiator says that Trump’s negotiating strategies have not changed since the former president wrote his book, “The Art of the Deal.”

“In that book, Trump says that when he confronts his rival in a negotiation, he first makes a threat. If his adversary bows, Trump runs over him. If his adversary defends himself, Trump sits down and negotiates,” Guajardo says.

While Mexico would have more to lose than the United States from a trade war, it has powerful tools to respond to Trump, Guajardo told me.

“Mexico is the No. 1 buyer of U.S. yellow corn and fructose, and a major buyer of U.S. poultry, pork and several other products. And we buy most of these products from U.S. rural areas that voted for Trump,” he said. “We have a way to respond directly to these threats.”

Mexico has another powerful tool in its box, which is China’s growing presence in North America. That’s a U.S. national security issue, and if Trump becomes too aggressive on raising tariffs, Mexico could increase its ties with China, he suggested.

When I mentioned to Guajardo that Trump may be more radical in his second administration, given his control of both houses of Congress and the boost from winning the popular vote, Guajardo responded, “Yes, it’s true that we may see a ‘Trump reloaded’ version of the former president. But, essentially, he’s the same character who wrote ‘The Art of the Deal.’”

I agree. But perhaps the biggest reason Trump won’t start a trade war in the Americas is that he would shoot himself in the foot by doing so. Mexico’s government has said that the U.S. will lose 400,000 jobs if Trump enacts his tariffs, and that there would be significant increases in U.S. prices of food, clothing and cars.

U.S. inflation would increase immediately, economists say. Mexico supplies much of the fresh fruits and vegetables imported by the United States. And it was precisely the high prices of food that may have led to Trump’s Nov. 5 election victory.

Granted, Trump may increase tariffs on a few not too significant imports so as to be able to claim later that he’s a master negotiator who got what he wanted. That’s what he did last time with Mexico. But most likely, he’s bluffing. And if he’s not bluffing, he’s crazy.