Trump's tariff plan could boomerang, spark trade wars with China, Mexico

Thu Mar 24, 2016 6:27am EDT
 
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By David Lawder and Roberta Rampton

WASHINGTON (Reuters) - Donald Trump's threats to slap steep tariffs on Chinese and Mexican imports may have won him votes in Republican primaries but they would likely backfire, severely disrupting U.S. manufacturers that increasingly depend on global supply chains.

The Republican presidential front-runner's campaign pledges to impose 45 percent tariffs on all imports from China and 35 percent on many goods from Mexico would spark financial market turmoil and possibly even a recession, former trade negotiators, trade lawyers, economists and business executives told Reuters.

"I don't mind trade wars when we're losing $58 billion a year," Trump said in a Feb. 25 debate, referring to the 2015 U.S. goods trade deficit with Mexico. Economists dispute the idea the United States is "losing" money as the trade deficit is simply the difference between what the United States imports and what it exports to a country.

"Imposing tariffs or putting up trade barriers may sound good, but it will hurt our economy and credibility," said Wendy Cutler, the former acting deputy U.S. Trade Representative who helped lead U.S. negotiations in the 12-nation Trans-Pacific Partnership trade deal last year.

Among those hardest hit would be the U.S. auto industry, which has fully integrated Mexico into its production network. Some $118 billion worth of vehicles and parts flowed north and south across the border tariff-free last year, according to U.S. Commerce Department data.

A 35 percent tariff would raise costs for Ford Motor Co's U.S.-assembled F-series and medium-duty pickup trucks that use Mexican-made diesel engines, one of its most profitable vehicle lines. (Graphic on U.S.-Mexico auto and parts trade: tmsnrt.rs/1UN3wun)

Ford CEO Mark Fields on Wednesday defended the company's investment strategy, which includes $9 billion for U.S. plants over the next four years, saying, "We will do what makes sense for the business."

Buyers of Fiat Chrysler Automobiles NV's popular Ram 1500 pickup trucks assembled in Saltillo, Mexico, could see their $26,000 base price pushed up by $9,000 if the tariff is fully passed on to consumers. A Chrysler spokesman declined to comment on Trump's statements.   Continued...

 
A factory employee is seen working in the plant of General Motors in the city of Silao, in the state of Guanajuato, Mexico in this November 25, 2008 file photo. REUTERS/Henry Romero/Files