As pointed out in Tariffs and Trade, strategic use of import tariffs can be effective in achieving change and trade reform by bringing parties to the table.
Diplomacy along with strongly worded letters and rhetoric only go so far. If trade violators do not fear justice or retribution, market manipulations will continue.
Even the most ardent free trade supporter will agree with the need to address trade issues with China, which is consistently accused of manipulating global trade.
While the application of tariffs brings fear of trade wars, the impact is different on both sides of the dispute. In the case with China, there best outcome was coming to the table and negotiating.
The use of economic tariffs will now expand to address the problems occurring at our southern border. The Trump Administration hopes tariffs will nudge the Mexican government to halt illegal immigration.
If successful, Mexico will implement reforms to keep people from violating our immigration laws and stop people from illegally entering their own southern border.
For many decades, Mexico had little incentive to assist in resolving the long term problem. Money sent back from illegal immigrants working in the US provided billions in funds.
In the presence of the tariffs, the benefits to the Mexican economy will be offset. And it will essentially be providing funds for the construction of the wall on our southern border.
The big issue is the potential economic impact associated with having trade conflicts with two key manufacturing trade partners at the same time.
The American economy is diverse enough to withstand trade battles. But, certain industries will be impacted more than others. For instance, agriculture, energy, and automotive.
The hope is Mexico will too come to the negotiating table and find common ground. An agreement will help protect our economic and national security interests.
While some people cringe at the aggressive tactics used by President Trump, even some of his advisers, there was a need to take a more confrontational approach.
Past administrations made little progress in resolving purposeful policy actions that caused trade imbalances or addressing the need for border security and immigration reform.
Hopefully, diplomacy is the end effect with tariffs being the slight nudge to get the parties in the right direction. Hopefully, the tariffs will never come to fruition or will be phased out once agreement is enacted.
We will have to wait and see.