Tariff threat against Mexico confirms a deal's not a deal with Trump: Don Pittis

Everyone knows politicians sometimes fail to keep their word. But when an entire country gives its word, businesses generally assume they can count on it. Not so in the era of U.S. President Donald Trump, as shown by his latest tariff threat against trade partner Mexico.

Critics say new border threats a warning that America's word cannot be trusted

U.S. President Donald Trump addresses U.S.-Mexico border and immigration issues at a fundraiser earlier this year. (Carlos Barria/Reuters)

Everyone knows individual politicians sometimes fail to keep their word, and like the rest of us, investors seldom count on those promises until they see the commitments fulfilled.

But when an entire country gives its word, businesses generally assume they can count on it. Not so in the era of U.S. President Donald Trump.

On Thursday, Trump announced via Twitter that his administration will impose tariffs on Mexico if it fails to stop migrants from crossing into the U.S. The next day, he tweeted more conditions that seemed to reopen NAFTA negotiations that were settled last September.

Critics say it shows that with Trump in charge, the U.S. is a nation that cannot be trusted. And that makes a difference.

On Friday, markets demonstrated how destabilizing that failure of trust can be. It has become a cliche of economic analysis to say that business hates uncertainty. Oil plunged, currencies gyrated, and the Dow Jones index fell more than 350 points.

But such an abrupt and unforeseen change of course could signal much more than just a one-time market shock.

"How do you plan for anything in this environment, whether in the U.S. or abroad?" Derek Holt, vice-president at Scotiabank Economics, said in a Friday morning note as markets began to tumble.

Non-reliable entity?

While Trump's trustworthiness was worrying markets, the Chinese government was announcing — with unintended irony, one presumes — a plan to designate certain foreign institutions and individuals as "non-reliable entities."

In a counterblow to U.S. attacks on telecommunications giant Huawei and other Chinese tech companies, Beijing announced what analysts are describing as China's own corporate blacklist.

According to the state-controlled Global Times, the "non-reliable entity list" would include "foreign entities, individuals and companies that block and shut the supply chain, or take discriminatory measures over non-commercial reasons."

It would be fair to wonder whether Beijing was implying one of those entities is in the White House.

Immigration activists burn a pinata depicting Trump and Mexican President Andrés Manuel López Obrador in April. (Jose Cabezas/Reuters)

If it went into effect, an across-the-board tariff on Mexican imports would raise prices for consumers and businesses across the United States. Canadians would not be off the hook, because in theory, goods and parts imported tax-free from Mexico and incorporated into Canadian exports would also face partial tariffs once sold to U.S. customers.

Of course, such details can only be guessed at when a politician like Trump seems to be making up policy on the fly.

Sneaking suspicion

Considering the devastating potential of such trade-disrupting tariffs, the fact that U.S. markets only fell by slightly more than one per cent on Friday is a hint that not everyone is taking Trump at his word.

The idea that the Mexican president could wave a magic wand and stop asylum seekers from crossing at any point along his country's massive border with the U.S. — something the U.S., with all its technology and border guards, has failed to do — is beyond belief.

It may be impossible for Mexico to prevent people like these Honduran migrants from crossing into the U.S. (Mohammed Salem/Reuters)

There is also a sneaking suspicion that Trump's tariff threat, which grabbed headlines across North America, intentionally came just as the U.S. president was once again facing damaging news coverage about Russian election interference.

"My net bias remains to retain some degree of faith that sundry checks and balances on Trump will exert themselves while counselling avoidance of a tendency to overreact, but the damage is nevertheless being done to market and business confidence in the interim," said Holt.

Besides concerns over the effect of tariffs on prices and trade routes, the sudden announcement seems to send a chill over what until Thursday had been seen as a warming of relations between Canada, the U.S. and Mexico over continental free trade.

Following the U.S.'s recent withdrawal of tariffs on aluminum and steel from its two closest trade partners, it appeared the three countries might be close to ratifying the NAFTA 2.0 deal negotiated last year. 

In fact, Canadian Foreign Affairs Minister Chrystia Freeland seemed to suggest on Friday that the meeting of minds between the three countries is still happening, in spite of Trump's recent threat against Mexico.

"The Mexican president has said today, speaking for Mexico, that Mexico intends to move ahead with its ratification process," she said in Parliament.

'How can you trust Trump?'

That, too, seems to presuppose Trump's latest threat is a flash in the pan. But businesses deciding whether to proceed with new investments that depend on the deal's final conclusion may be right to be wary. 

Other wild Trump statements written off as self-interested or diversionary rants have ended up sticking and becoming administration policy. Many analysts at the time scoffed when Trump declared NAFTA the worst trade deal ever, threatened to ditch the Iran nuclear deal and promised to build a wall along the U.S.'s southern border.

Chris Krueger, managing director of the Cowen Washington Research Group, which provides trade and market analysis, said Trump's latest attack on Mexican trade, if not withdrawn, could kill the new NAFTA trade process and further disrupt negotiations with China. 

The question Krueger asked must be echoing in Beijing, Brussels, Mexico City and Ottawa: "How can you trust Trump to honour deals?"

Follow Don on Twitter @don_pittis


Don Pittis

Business columnist

Based in Toronto, Don Pittis is a business columnist and senior producer for CBC News. Previously, he was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London.


To encourage thoughtful and respectful conversations, first and last names will appear with each submission to CBC/Radio-Canada's online communities (except in children and youth-oriented communities). Pseudonyms will no longer be permitted.

By submitting a comment, you accept that CBC has the right to reproduce and publish that comment in whole or in part, in any manner CBC chooses. Please note that CBC does not endorse the opinions expressed in comments. Comments on this story are moderated according to our Submission Guidelines. Comments are welcome while open. We reserve the right to close comments at any time.

Become a CBC Member

Join the conversation  Create account

Already have an account?