In the wake of President Donald Trump’s heavy criticism of NAFTA, Mexico’s President Enrique Pena Nieto announced that he will be visiting China next week to discuss the possibility of trade and investment ties between the two nations that are now under attack from Trump. For instance, the imposition of punitive tariffs on Mexican and Chinese imports, as well as the withdrawal from NAFTA was the focal point of President Trump’s rhetoric during his campaign. In addition, a recent escalation of tensions occurred when Videgaray stated that he will end all negotiations for Trump’s infamous border wall should he decide to withdraw from NAFTA.
Meanwhile, the prospects of Sino-Mexican economic ties are optimistic, with China’s ambassador to Mexico, Qui Xiaoqi, emphasizing that China “ha[s] a great interest in deepening and broadening these ties.” The China-Mexico rapprochement had begun shortly after Trump’s victory in the U.S. Presidential Elections. Prior to the elections, this new alliance was unthinkable as Mexico had considered China to be a competitor in the American market. However, Trump’s repeated threats have since forced both nations to join forces in order to counter the severe economic implications of losing access to the American market.
With that said, what are the implications of this new alliance?
In an article by Everyday Money last November, writer Ian Salisbury predicted that “Trump could start a trade war in his first 100 days.” Throughout his campaign, Trump had hinted at huge trade barriers as part of his agenda. One Wall Street research firm, Moody’s Analytics, stated that such policies will lift the overall cost of U.S. consumer prices by roughly three percent by about a year and a half the new rules take effect. It was also reported that Trump’s policy will trigger retaliatory tariffs that could then take a big toll on U.S. exports, about one-fourth of which go to China and Mexico.
Thus, with the predicted trade war now materializing before our eyes, the economic implications on both sides will be severe. However, with the new alliance between China and Mexico, it will not be long before they start adopting tic-for-tac strategies to counter U.S. protectionism. Trump’s rash decision making and policy flip-flops have been called into question time and time again. Trump’s move towards protectionism will only harm Americans and its diplomatic ties. In the absence of foreign competition, quality and prices of goods and services will leave American consumers at the mercy of powerful local businesses. In the onset of this trade war, consumers in China and Mexico will meet similar fates that will threaten their quality of life.
In the Golden Age, protectionism was adopted to protect local businesses from external competition. However, this only led to short-lived rapid economic growth that in the long run became unsustainable when retaliatory tariffs contributed to the Great Depression.
With that in mind, let us not repeat history.