Trump says U.S. to impose 5 percent tariff on all Mexican imports

President Trump on Thursday said he would impose a 5 percent tariff on all goods entering from Mexico unless it stopped the flow of illegal immigration to the United States, a dramatic escalation of his border threats that could have sweeping implications for both economies.

The White House plans to begin levying the import penalties on June 10 and ratchet the penalties higher if the migrant flow isn’t halted. Trump said he would remove the tariffs only if all illegal migration across the border ceased, though other White House officials said they would be looking only for Mexico to take major action.

After the 5 percent tariffs are imposed on June 10, the White House said it would increase the penalties to 10 percent on July 1 and then an additional 5 percent on the first day of each month for three months. The tariffs would stay at 25 percent “until Mexico substantially stops the illegal inflow of aliens coming through its territory,” a statement by the president said.

The economic consequences of Trump’s new plan could be swift and severe. Tariffs are paid by companies that import products, so U.S. firms would pay the import penalties and then likely pass some costs along to consumers. Mexico exported $346.5 billion in goods to the United States last year, from vehicles to fruits and vegetables. And many manufactured items cross the border several times as they are being assembled.

White House officials did not immediately explain how driving up the cost of Mexican goods might stem the flow of migrants. If the tariffs damaged the Mexican economy, more of its citizens would try to cross the border to find work in the United States, experts said.

“Mexico is our friend and neighbor, a partner in trade and security,” said Glenn Hamer, chief executive of the Arizona Chamber of Commerce and Industry. “The president’s announcement is baffling and, if carried out, will be terribly damaging.”

Mexico vowed a response that could pitch the Trump administration into a full-scale trade war with one of its largest trading partners. This comes just days after the White House and China imposed stiff penalties on each other’s exports.

At a news conference, Mexico’s deputy foreign minister for North America, Jesús Seade, said the threatened tariffs would be “disastrous” and added that Mexico would respond “strongly.”

In a letter sent Thursday evening, Mexican President Andrés Manuel López Obrador addressed Trump in harsh terms, a marked change from the diplomatic posture he has tried to adopt since being elected last July. “President Trump, social problems can’t be resolved through taxes or coercive measures,” López Obrador wrote.

He said he would send his foreign minister to Washington on Friday “to arrive at an agreement that benefits both nations.”

But even as López Obrador suggested that there was a diplomatic solution, he unloaded on Trump for his administration’s immigration policy.

“How did a country of fraternity for all the migrants in the world become, from night to dawn, a ghetto, a closed space,” where migrants are stigmatized and mistreated, López Obrador wrote. He went on: “The statue of liberty is not an empty symbol.”

Trump has often tried to use tariffs and other import penalties as a way to pressure countries into changing behavior, but he has not yet done it on such a scale. In addition, he wrongly has said the cost of tariffs are shouldered by the countries that he targets.

Even some White House officials were caught off guard by the announcement, though planning within the West Wing escalated on Thursday afternoon. Vice President Pence was in Canada on Thursday, meeting with Canadian Prime Minister Justin Trudeau about ratifying an updated version of the North American Free Trade Agreement with Mexico, but it’s unclear if Trump’s newest tariff threat could upend those discussions.

White House officials believe Trump has powers under a 1977 law to impose tariffs on all imports from certain countries if he cites a “national emergency.” And several months ago, Trump declared a national emergency along the Mexico border because of a surge in migrants crossing into the United States.

But the 1977 law has never been used to impose tariffs in this way before, and Trump’s new actions could face legal challenges because of the scope of companies that would be impacted.

The new tariff threat combines two of Trump’s favorite issues — immigration and trade — and comes as he has struggled to score victories on either one.

A central element of Trump’s campaign was his assertion that the United States was being “invaded” by people across the Mexico border, a sentiment that resonated with many supporters. He has tried to rework trade rules and build a wall to stop the flow of migrants, but so far his efforts have failed to stem the surge of people crossing the border. Crossings at the U.S.-Mexico border, driven by Central American migrants seeking asylum, have peaked to their highest level in more than a decade.

One senior White House official, who spoke on the condition of anonymity to discuss internal deliberations, said there is broad support across the administration to push Mexico further by using tariffs to force action. Other aides, however, tried to talk Trump out of the idea, arguing that the threat would scare global markets and undermine passage of the United States-Mexico-Canada Agreement, or USMCA, which was just sent to Congress on Thursday by the White House. The trade deal aims to curb the type of tariffs Trump is now threatening to impose on Mexico.

“Trade policy and border security are separate issues,” Sen. Charles E. Grassley (R-Iowa), chairman of the Senate Finance Committee, said in a statement. “This is a misuse of presidential tariff authority and counter to congressional intent. Following through on this threat would seriously jeopardize passage of USMCA, a central campaign pledge of President Trump’s and what could be a big victory for the country.”