AYESHA RASCOE, HOST:
President Donald Trump is threatening tariffs against America's two largest trading partners, Canada and Mexico. Trump says the tariffs could come as early as February 1, adding a 25% tax paid by American importers on goods coming in from both countries. Now, the U.S. already has a free-trade agreement with both nations. It's called the USMCA, and it was negotiated by President Trump back in 2018. Kenneth Smith Ramos was Mexico's chief USMCA negotiator, and he joins us now from Mexico City. Thank you for being with us.
KENNETH SMITH RAMOS: It's a real pleasure, Ayesha. Thank you for the invitation.
RASCOE: Can you help us put this number into perspective? What would 25% across-the-board tariffs look like? How big is that?
RAMOS: Well, it really is a very big deal. As you mentioned, Mexico, Canada and the U.S. have a free-trade agreement in place in which practically every product traded between the three countries comes into the U.S., Canada and Mexico free of tariffs. So what does this do? For all intents and purposes, a 25% tariff across the board would essentially suspend the USMCA. And this would have grave consequences because both Mexico and the U.S., for example, benefit tremendously from the interconnection of their industrial sectors. We have trade between Mexico and the U.S. that is near $1 trillion, and the value of the entire USMCA for all three countries surpasses $2 trillion. So this whole notion that the new government in the United States is aiming to reduce inflation - well, the consequence of increasing tariffs would be precisely the contrary.
RASCOE: Would the trade still happen, or would the prices just be astronomically high?
RAMOS: Well, I mean, there are several options. It depends on each product. For example, for avocados - and now we're getting close to the Super Bowl, where there's an enormous amount of imports of Mexican avocados for all of the guacamole that's consumed - well, essentially, prices could triple. You would not have enough production in the United States, and so therefore, you would have an immediate increase in prices.
The people who pay this are the U.S. consumers. It's the importers that bring in the fruit from Mexico and then pass on the excess cost to the consumers, so you would have an immediate hike in food products. And in industrial products - this is very interesting - the U.S. requires a lot of products that come into - from Mexico that are used to manufacture vehicles, airplanes, helicopters, refrigerators, etc. A lot of it is produced in the U.S., but the U.S. imports over $130 billion worth of these components into the United States from Mexico every year.
So what would happen with a 25% tariff is that you would be not only punishing consumers, but you would also punish U.S. workers and U.S. industry, for example, in the automotive sector because they rely on Mexican products, Mexican components that are purchased every year and that come into the production of vehicles in the United States. So the impact of that would be making vehicles in the United States more expensive and less competitive with other regions in the world.
RASCOE: What has been the Mexican government's response to these potential tariffs from the U.S.?
RAMOS: So the Mexican government has already said that it is willing to sit down to begin negotiating with the United States authorities on immigration, on drug trafficking, because this is not a problem that gets resolved only by Mexico. It is a combination of responsibilities on both sides of the border.
So sitting down and trying to work, first of all, on a work plan on immigration and security can get rid of the pressure to impose tariffs. That could be one goal of the Mexican government. But at the same time, it has also stated that if the U.S. unilaterally decides to increase tariffs against Mexican products, that would be a violation of the USMCA and Mexico would have the right to impose retaliation.
And let's remember that Mexico is the No. 1 destination for most agricultural products from the U.S. We're talking about corn, soybeans, rice, high-fructose corn syrup, pork products, meat products from beef and poultry. All of these could be taxed heavily, and therefore, everybody would lose. That's the problem with trade wars. The U.S. would lose the access to the Mexican market.
RASCOE: How can the Mexican government make this argument to the U.S.? The Mexican economy is much smaller than the U.S. What leverage does Mexico have?
RAMOS: Yeah, I think in the whole discussion of how the U.S. is looking to compete with China, Mexico is a very important part of that equation because it is precisely by virtue of having a trade agreement - which not only allows you to trade products free of tariffs between the countries, but it also connects the manufacturing centers of Mexico, Canada and the U.S., and it leads to specialization. There's certain processes, for example, more labor intensive, which require more workers to produce manually certain products than the high-tech industries in the United States.
So there's what we call complementarity, right? You build certain parts of products in all three countries, and that reduces costs and allows you to compete better. It allows you to have better products at better prices with higher salaries in North America. And therefore, you can start competing successfully with China and the European Union.
Imposing 25% tariffs or even less creates uncertainty for the governments in terms of the long-term viability of the trade deal but especially for investors and exporters. You know, businesses rely on having the certainty of rules that will last for a long time, and that means the access - unrestricted access to the Mexican market, to the U.S. market and the Canadian market.
RASCOE: That's Kenneth Smith Ramos, former chief USMCA negotiator for Mexico. Thank you so much for being with us.
RAMOS: It's a real pleasure, Ayesha. Thank you very much.
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