Background on Ludwig von Mises
Ludwig von Mises was an Austrian School economist and a leading figure in the development of modern neoliberalism. His quote, “The philosophy of protectionism is a philosophy of war,” highlights his belief that protectionist policies can lead to trade wars, ultimately harming all participating nations.
Tariff Threat Between the U.S. and Mexico
As the deadline for the U.S. to impose tariffs on Mexico approaches, uncertainty surrounds the certainty of their implementation and potential impacts on both the renegotiation of the free trade agreement next year and Mexican export companies across various sectors.
U.S. Trade Narrative
The U.S. trade narrative, under President Trump’s administration, claims that tariffs aim to bring back businesses and jobs to the U.S., regaining its position in manufacturing goods. However, this assumption is challenging to materialize due to the following reasons:
- Loss of manufacturing dynamism: The U.S. lost its manufacturing prowess decades ago, shifting focus to the service sector which contributes more significantly to its economy.
- Offshoring of production: U.S. companies have manufactured products in other countries, primarily China, allowing the U.S. to concentrate on service-based industries.
- Lack of infrastructure investments: Unlike China, the U.S. has not invested in crucial infrastructure like roads, ports, and railways needed for a goods-producing economy.
- High labor costs: The elevated cost of labor in the U.S. makes it difficult for companies to return, despite tariff pressures.
Tariffs as a Political Tool
For eight years, and especially during Trump’s first administration, tariffs have been used as extreme negotiation tactics and political/economic pressure tools to secure advantages in various areas against different countries. In Mexico’s case, tariffs have been a means to pressure the country into taking specific actions related to security and migration control.
- Limited progress: Despite some advancements, the U.S. views these as insufficient, so tariff pressures will likely persist.
- Potential new extension or partial implementation: The U.S. might grant a new extension on tariff application or implement them partially, targeting only strategic products.
Impact on the USMCA Renegotiation
The approaching renegotiation of the North American Free Trade Agreement (NAFTA) suggests that tariff threats will be used to secure more favorable conditions. However, it’s worth noting that the agreement was already renegotiated during Trump’s previous administration, with many changes driven by protectionist logic from key advisors like Peter Navarro.
Evidence Against Tariffs
Multiple studies show that tariffs have not positively impacted U.S. businesses, failing to significantly boost manufacturing employment and instead causing supply chain pressures and inflation.
Mexico’s Preparation for Tariff Pressure
Mexico should anticipate ongoing tariff pressures and threats, at least until the end of Trump’s presidency or possibly until midterm elections that could alter the balance of power in the U.S. legislature and weaken the executive’s ability to enforce such measures.
