Trump’s Backdown on Punishing Mexico: Trade War Peak?

Republican lawmakers won’t let him slam China with more tariffs, says Pantheon’s Shepherdson.

Maybe we can give peace a chance: It could be that we have seen the peak of the trade war, meaning it won’t get worse.

Republican lawmakers’ successful resistance to President Donald Trump’s plan to sock Mexico with harsh new tariffs has limited his ability and desire for more trade warfare, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics.

What’s more, Shepherdson wrote in a research note, there’s little chance the Trump administration will enlarge the tariffs against China, which would smash them with levies on $300 billion more in goods.

Senate Majority Leader Mitch McConnell laid down the law to Trump on June 4, saying, “There is not much support for tariffs in my conference.” Shepherdson translated that to mean: “Please don’t do this; it’s crazy, and you could be humiliated by a two-thirds majority in the Senate to stop you doing it.”

Result: Trump ditched the levies, intended to coerce Mexico into stepping up its efforts to stem migration of Central American refugees into the US. The president contended that the Mexican government had knuckled under to his harsher enforcement demand, although it apparently already had agreed to take such steps before the tariff threat.

Shepherdson wrote that “this episode demonstrated to everyone—domestic politicians on both sides, the business lobby, and trade partners—that the president’s freedom of movement on trade is constrained.”

By Shepherdson’s reckoning, Republican lawmakers’ leeriness over the impact of broader Chinese trade sanctions will keep Trump from imposing them. They fear, he wrote, that “pushing up the price of everything at Wal-Mart, would strike existential fear into the heart of congressional Republicans, and they would push back hard, along with the retail lobby and advocates for low-income families, who would suffer most.”

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