Trump vs Sheinbaum on Tariffs
A big risk to North America is that Claudia Sheinbaum calls Donald Trump’s bluff.
A big risk to North America is that Claudia Sheinbaum calls Donald Trump’s bluff.
Last night, President-elect Trump launched the first salvo in his planned trade war, announcing that one of his first executive orders will enact 25% tariffs on all goods from Mexico and Canada. He will also implement 10% tariffs on goods from China. The reasons given are migration and fentanyl but understood was the idea of Trump completing a campaign promise to be tariff man.
“He can’t possibly do it. It would ruin the US economy.” Correct. That’s what rational analysts living in a reasonable world are quite certain of. That’s why there is so much disbelief about Trump’s proposed policies. It doesn’t take complicated economic theory to realize that tariffs at this scale would cause a spike in inflation and supply chain shocks that would send the United States straight into a recession.
That leaves two options. First, Trump is willfully ignorant of the impact of his proposal and he’s going to learn a tough political lesson as the United States suffers unless his advisors walk him back. Or, second, this is a negotiation position. Perhaps he believes the threat of 25% tariffs has value, the political theater is good for his domestic image, and then he can force Canada and Mexico to make concessions to demonstrate his ability to make good deals. Trump likes to negotiate by making absurd threats and then forcing his counterparts to make concessions back toward reality.
Either way, in the same way so many analysts are convinced that this threat can’t possibly be serious, they are also convinced that Mexico can’t engage in a tit-for-tat trade war with the US. For however much the US economy will suffer, Mexico’s economy will suffer much more given how large US exports factor into the country’s GDP. In facing this threat, Mexico’s government must do more to cooperate on migration and other issues because they can’t win this trade war.
I’m forced to wonder what happens if the conventional analysis that Mexico is unwilling or unable to fight back is also wrong.
Sheinbaum has popularity, political capital, and institutional control to spare. AMLO left her in a powerful position. Whether you believe she is fully in control or that AMLO continues pulling the strings behind the scenes, an aggressive agenda is barreling forward. While a trade war would always be disastrous for Mexico’s economy, no Mexican leader has ever been in a better political position to challenge the US president than she is right now. Would her popularity drop if the North American economy crashed due to a trade war? Absolutely. But her domestic political situation including her control over the party and the judiciary would hold stronger than Trump’s, who was elected on a narrow margin to fix the economy and with a very narrow majority in Congress.
Suspend your disbelief for a moment and war game this trade war in your head. Sheinbaum calls Trump’s bluff and announces the retaliatory policies that will go into place on 20 January the moment those 25% tariffs are announced. No negotiations, no offers to appease Trump. Simply responding to the policies and letting Trump own his economic failure, believing that he’ll be forced to back down as the US economy crashes. She tells Mexicans to prepare for the economic hardship to come and starts implementing economic measures to try to hold on for the months ahead to outlast the trade war.
Is any of the above the likely scenario? No. I think Trump will preemptively back down (while of course declaring a victory) or Sheinbaum will fold to avoid the worst outcome. But we’re in an unusual moment. The odds of an outlier scenario of a full trade war between the US and Mexico playing out for months with high tariffs, a partially closed border, and mutual economic destruction is much higher than the rational analyst in all of us wants to admit.
The above analysis will sound familiar to anyone who read yesterday’s World Politics Review column about Trump’s plans to use military force against Mexico’s cartels. Whether tariffs or bombing fentanyl labs, disbelief is the most common response to a suggested policy that is so stupid and counter-productive. It’s also fair to say that Trump’s most radical suggestions along these lines rarely became policy during his first term, which gives some backing to those who argue those same policies will be avoided the second time around.
I’m hopeful that these policies don’t happen, but I’m also nervous about watching announcements of these policies with the most common reaction being, “it’ll be fine; it’s just part of the show; he can’t possibly go through with it.” This isn’t a television show where plot armor guarantees that everything will turn out ok. Many of the people who walked back Trump’s wild policy suggestions during his first term are no longer around him. Even if Trump is saying some of these things for entertainment or negotiation value, the probabilities of backing into a massive trade war or the US escalating a cartel war are quite high.