Yesterday, President Trump announced that, beginning on June 10, 2019, the United States will impose additional duties on all articles imported into the United States from Mexico (via land, sea or air) on an escalating schedule until Mexico does more to stop the flow of illegal migrants to the United States. This tweet was then followed by a longer statement issued by the White House (available here). That statement accuses Mexico of “passive cooperation in allowing [the] mass incursion” of illegal migration to the United States over many years (e.g., not enforcing its own strong immigration laws, not instituting stricter border controls on its southern border with Guatemala, etc.) and says that this “constitutes an emergency and extraordinary threat to the national security and economy of the United States.” In response, President Trump is invoking the International Emergency Economic Powers Act to impose additional duties on all articles imported into the United States from Mexico until the “migration crises is alleviated through effective actions taken by Mexico” (as determined by the United States). More specifically, the statement lays out the following escalating schedule:
June 10, 2019 – 5% additional duty imposed on all articles imported into the United States from Mexico
July 1, 2019 – 10% additional duty imposed
August 1, 2019 – 15% additional duty imposed
September 1, 2019 – 20% additional duty imposed
October 1, 2019 – 25% additional duty imposed
Tariffs will then remain at 25% until “Mexico substantially stops the illegal inflow of aliens coming through its territory.”
There are a few points to keep in mind here.
First, the statement is a threat of future action. While everyone should take this threat seriously, there is a week for the United States and Mexico to resolve the issue and avoid the imposition of duties (which would certainly involve Mexico doing more to stem the flow of migrants from Central America through its territory). That said, if enough is not done, we fully expect that these duties will be imposed and will remain in place until President Trump is satisfied that Mexico does more.
Second, if the duties are imposed, they are in addition to whatever duties are currently due on articles. So, if an article imported from Mexico enters the United States duty free today under NAFTA, it will be subject to a 5% duty rate as of June 10th. In short, eligibility does not impact these additional duties; they are paid regardless of NAFTA qualification.
Third, the additional duties will be paid by the U.S. importers. Given that much of the Mexico-U.S. trade is between related parties (e.g., a wholly-owned assembly factory or maquila/IMMEX company producing articles imported into the United States by a U.S. parent/affiliate), the duties will be borne by U.S. interests. As the White House statement makes clear, though, the Administration is aware of this – “[i]f Mexico fails to act, Tariffs will remain at the high level, and companies located in Mexico may start moving back to the United States to make their products and goods.” So, either Mexico does more to stop the migrants transiting its territory on the way to the United States, or companies will start moving their production facilities from Mexico to the United States (or some third country).
Fourth, it is hard to imagine that this helps the Administration’s efforts to get the USMCA enacted. Yesterday, the Administration tried to advance the USMCA by sending a draft Statement of Administration Action to Congress for discussion purposes. The Administration is pushing to get USMCA through this summer (before the presidential election cycle fully ramps up this coming fall), but the additional duties will likely impact that timing.
Finally, this is another example of President Trump using U.S. trade statutes in expansive and unprecedented ways. What qualifies as an emergency or a national security risk is largely undefined under the statutes. President Trump has shown a willingness to push the envelopes, but where does that end? Is climate change an emergency or national security risk that justifies the imposition of additional duties? What about a trade deficit itself? Eventually, Congress will likely (try to) step in and put some parameters around these provisions. In the meantime, business will be faced with greater uncertainty and we will all need to keep an eye on our twitter feeds (and hold on).
We hope this is helpful. If you have any questions, please let me know.