Trade War with Mexico?

Mexico has put $2.4 billion in tariffs on American items after the Obama Administration stopped some Mexican long-haul trucks from entering the U.S.

By Steve LeVine

The Obama Administration, by putting an end to a program that allowed some Mexican long-haul trucks into the U.S., has triggered a slew of retaliatory tariffs from Mexico. The White House seems to be looking for a way to resolve a dispute that it failed to avert, despite much forewarning. But it looks like it may be too late to avoid the $2.4 billion in tariffs altogether, experts say.

On Mar. 16, Mexico announced tariffs on about 90 items from 40 U.S. states, mostly on agricultural products. It was retaliation for Congress' decision last week to kill a program meant to defuse a dispute that has lasted more than 13 years over the right of U.S. and Mexican long-haul trucks to cross each other's border carrying goods. Mexico contends that the U.S. is violating the North American Free Trade Agreement, which provides for free movement by each member state's trucks. Congressional critics say Mexican trucks are unsafe and do not belong on U.S. roads.

The dispute comes at a time of rising concern that financially ailing countries will erect trade barriers in an effort to boost their individual economies at the expense of other nations. In a statement on Mar. 17, the World Bank cited a rise of protectionism since the members of the Group of 20 pledged in November not to raise trade walls against each other. The bank said 20 G-20 countries had implemented 47 trade-restrictive measures against other nations in the last four months.

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China had banned Irish pork and Belgian chocolates, India had banned Chinese toys, and America, in the eyes of many, had violated the spirit of free trade by bailing out Detroit. "Leaders must not heed the siren song of protectionist fixes, whether for trade, stimulus packages, or bailouts," World Bank President Robert B. Zoellick said. "Economic isolationism can lead to a negative spiral of events such as those we saw in the 1930s, which made a bad situation much, much worse."

President Barack Obama campaigned on a platform of stricter enforcement of existing trade agreements. But in the worsening financial crisis, he has sharply toned down his language and has instead joined the chorus warning against protectionism. Still, U.S. Trade Representative-nominee Ron Kirk has said the Administration will look to strictly enforce U.S. trade agreements.

Now the White Houe has to keep the clash with Mexico from escalating. John Murphy, vice-president for international affairs at the U.S. Chamber of Commerce, called the Mexican reprisal "a wake-up call" for the Administration. He said it demonstrates that, while the U.S. can focus on enforcement, it is vulnerable to economic retaliation. "We need to look at our side of the street as well," he said.