June 4, 2019 / 9:09 PM / 6 months ago

Breakingviews - Mexico tariffs may lead to more bills for America

Welcome sign greets visitors from Mexico to El Paso, Texas, U.S. on October 2, 2017. REUTERS/Ann Saphir

SAN FRANCISCO (Reuters Breakingviews) - Tariffs on all Mexican imports may lead to more bills for America. The southern neighbor hopes to avoid import taxes by doing more to stop migrant crossings. But a weak economy and lower oil revenue have already forced Mexico to cut its 2019 budget. President Donald Trump may need to stump up even more aid to help the country meet his demands.

America’s third-largest trading partner was blindsided by Trump’s tariff tweet last Thursday. Although the two sides are holding talks in Washington this week, Trump said in London on Tuesday it was likely a 5% levy on Mexican goods would go into effect on June 10. They are due to rise to 25% in October unless the country stops migrants fleeing violence in Central America from crossing into the United States.

That would deal a fresh blow to the Mexican economy and cost U.S. businesses and consumers, who actually pay the tariffs. Cars, trucks, buses and vehicle parts made up more than a third of Mexico’s nearly $350 billion in exports to the United States last year. It’s also the largest source of American agricultural imports.

Reduced oil output and slower consumer spending already forced Mexico to lower its GDP growth estimate for this year by four-tenths of a point, to 1.6%. In April the government of President Andres Manuel Lopez Obrador cut $6.2 billion from its 2019 budget of $296 billion.

The cutbacks threaten migrant-control efforts. Mexico’s refugee agency, which currently processes only about 30% of asylum applications, could have its budget cut by 25% this year. In December, Lopez Obrador pledged to spend $25 billion over five years for development in southern Mexico, which could provide jobs to Central American migrants, but it’s unclear if he can uphold it.

Mexico’s strained resources have forced the United States to kick in funding for years. Under a crime-fighting initiative, Washington has spent about $3 billion since 2008, including money for immigration control, according to a 2019 Congressional Research Service report. The 2019 budget includes $145 million for the program and the Trump administration requested another $76 million for 2020.

Squeezing Mexico with tariffs will probably just increase America’s immigration tab.

Breakingviews

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