Businesses are relieved Trump backed off a trade war with Mexico, but his tariff threat still looms large


The business community exhaled a collective sigh of relief over the weekend after President Donald Trump took tariffs against Mexico off the table and pulled back from another trade war.

At least for now.

Trump said he has “full confidence” that Mexico will crack down on migration, and the U.S Chamber of Commerce and the Alliance of Automobile Manufacturers praised the president for suspending the planned tariffs.

Whether or not Trump’s agreement with Mexico will hold, however, is an open question.

The president thanked Mexico’s president and foreign minister and said so long as Mexico tries “very hard” to enforce the deal, “this will be a very successful agreement for both the United States and Mexico.”

But Trump also warned that tariffs remained an option.

“We can always go back to our previous, very profitable position on tariffs — but I don’t believe that will be necessary” he said in a Twitter post Sunday.

Trump has a record of quickly changing his position if he believes his negotiating partner is not meeting his demands.

The president suspended tariff hikes on China, for example, as the two countries sat down to try to hash out a trade deal. But he ultimately reversed that decision and more than doubled tariffs on $200 billion in Chinese goods after trade talks collapsed – despite weeks of signaling from the White House that the two sides were making progress.

In that case, the White House accused China of back tracking on its commitments, while Beijing pointed the finger at the U.S. It’s now unclear if Beijing and Washington can reach a deal. Negotiations have apparently stalled and administration officials have said no concrete plans for talks have been scheduled.

Whether or not a deal is reached now seems to hang on a meeting between Trump and Chinese President Xi Jinping at the G-20 meeting in Japan this month.

“We’re going to need to see action, and President Trump is going to need to make sure he’s clear that we’re moving in the right direction to a deal,” Treasury Secretary Steven Mnuchin told CNBC’s Nancy Hungerford. “The president will make a decision after the meeting.”

Mnuchin made clear that Trump will continue to wield tariffs as a negotiating tool.

“If China wants to move forward with the deal, we’re prepared to move forward on the terms we’ve done,” he said. “If China doesn’t want to move forward, then President Trump is perfectly happy to move forward with tariffs to re-balance the relationship.”

In the case of his policy toward Mexico, the president has made cracking down on migration at the southern border a central priority of his administration, but he has often been frustrated by court battles and opposition in Congress, where Democrats control the House.

Indeed, his abrupt decision to threaten 5% tariffs on Mexican exports to the U.S. seemed to come as an act of frustration, apparently egged on by conservative radio commentary and immigration hawk Stephen Miller.

But it’s unclear if Mexico has the capacity to stem migration from Central America. The factors pulling people north are strong and Mexico’s enforcement capacity appears weak.

A former U.S. ambassador to Mexico wrote this week that migration from Central America is fueled by the inability of governments there to provide for their citizens, a reality that has “deep-rooted causes that will take years to solve.”

Tony Wayne, now a non-resident fellow at The Atlantic Council, said Mexico simply has not had sufficient resources to stem the flow of migrants.

“Mexico’s immigration and refugee agencies are severely understaffed, under-resourced, and overwhelmed by the increased numbers of Central Americans heading north,” Wayne wrote.

And The New York Times reported on Saturday that the terms of the deal mostly consist of actions that the U.S and Mexico actually agreed to months ago – well before Trump’s original decision to threaten tariffs.

While the Alliance of Automobile Manufacturers praised Tump’s decision not to pull the trigger on tariffs, the group also warned that any barriers to trade at the border would hurt the economy.

“Any barrier to the flow of commerce across the U.S.-Mexico border would have a cascading effect – harming U.S. consumers, threatening American jobs and investment and curtailing the economic progress that the administration is working to reignite,” the alliance’s CEO, David Schwietert, said.

In the case of China, markets were expecting a deal and were blindsided when the opposite happened and the president hiked tariffs.

In the case of Mexico, the two countries may have a signed agreement in hand right now, but Trump made clear in his announcement Friday and comments over the weekend that the tariff threat is only suspended — and he could wield it again at any time.