Trump’s tariff on Mexican shrimp will require ‘hard decisions’

Trump’s tariff on Mexican shrimp will require ‘hard decisions’

June 3, 2019 0 By admin

Another significant source of shrimp for the US now looks likely to get more expensive following president Donald Trump’s latest trade-related tweet, announcing his intention to place a 5% tariff “on all goods imported from Mexico” as soon as June 10 with the amount potentially escalating up to 25% in just a few months.

Bill Hoenig, VP of procurement and operations for Delta Blue Aquaculture, a Tucson, Arizona-based shrimp importer, believes the Mexican shrimp industry can survive the early days of the trade attack but, should the tariffs continue to escalate, it could be real trouble.   

The 5% tariff “will be disruptive, yes, but a complete disaster, not necessarily”, Hoenig told Undercurrent News on Friday. “But when you start getting past 10% and 15%, then some hard decisions are going to have to be made.” 

The threat is tied to what seems to be the president’s favorite issue, stopping illegal immigration on the US’ southern border, though the matter had seemingly taken second stage until Thursday night to the Robert Mueller investigation. Over two successive tweets, Trump wrote:

“On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,….at which time the Tariffs will be removed. Details from the White House to follow.”

The president warned further that, if Mexico does not act as he demands, tariffs would increase to 10% in July, 15% in August, 20% in September, and a permanent level of 25% by October.

The numbers

The US imported $371.9 billion worth of goods and services from Mexico in 2018, second only to China ($557.9bn worth). Canada, by contrast, was responsible for $353.6bn worth of US imports.

In jeopardy from the tariffs, along with automobiles, electrical machinery, medical instruments and agriculture – 43% of all imported produce — is 93,868 metric tons of Mexican seafood worth $627.7 million.

That’s how much fish and shellfish the US imported from Mexico in 2018, 1% less in volume and 3% less in value than 2017, reveals a quick review of National Oceanic and Atmospheric Administration (NOAA) data.

As much as 24,884t of that was shrimp, which was worth $282.6m (almost half of all seafood value from Mexico). It’s by far the largest seafood commodity the US imports from Mexico, way ahead of the second-place commodity, tuna. The US imported 8,434t of the finned fish, including most heavily albacore and bluefin, worth $51.2m in 2018.

Mexico, in March, accounted for 2,104t of US shrimp imports worth $23.9m, sixth on the list of source countries behind only India, Indonesia, Ecuador, Thailand and Vietnam. The volume represented a 22% improvement over March 2018.

Though Mexico produces between 40,000t and 50,000t of wild-caught shrimp annually, harvesting in both the Gulf of California and the Gulf of Mexico, it produces at least three times that amount via aquaculture, Hoenig told Undercurrent. 

The country’s shrimp is best known for being offered at larger than usual sizes, headless with shell on. It’s a style in tight supply, as producers know the margins are typically slimmer than for peeled shrimp, he said. 

Based on data from Urner Barry, the most common size of Mexican shrimp — the 21-25 count — has been fluctuating in price for the past few months, between $4.80 and $4.90 per pound. So a 5% tariff would mean a 24 to 25 cents per pound hit. 

Currently, US importers pay no tariffs on shrimp from Mexico, thanks to the North American Free Trade Agreement (NAFTA).

Though it’s not yet clear who might eat that additional fee, it’s possible the Mexican shrimp industry could deal with it, Hoenig said. However, at the higher rates threatened by Trump, it’s not likely business will continue as usual and the US can expect to lose its best source of large, headless, shell on shrimp, he said. 

Another reason Hoenig gave for Mexico feeling the pinch of tariffs more later in the year: Production typically cranks up more in August and September, during the height of the wild catch seasons.

For an illustration of what tariffs might do to Mexican shrimp imports in the future, consider the current state of Chinese shrimp, which saw their tariffs increase from a 10% rate set in September to 25% on May 9.

The 678t of Chinese shrimp imported in March, worth $3.5m, is down 65% in volume and 76% in value from the same month in 2018. And that was before the new 15% higher tariff rate.

So who would most benefit most from the higher tariffs? Answer: Three markets: China, Europe and Mexico itself. Mexico is, by far, a net importer of shrimp, keeping all but 20,000t of the shrimp it produced in 2018, Hoenig noted. 

Also, should Mexico retaliate with its own tariffs, the US seafood industry sent Mexico 19,774t of products in 2018 worth $71.2m. Salmon was the most valuable item, accounting for 2,801t worth $10.3m. 

Grassley, McConnell, Lighthizer, NFI not fans

Though he used the authority given him in sect. 301 of the American Trade Act of 1974 to launch tariffs on Chinese, this time Trump seems prepared to use the International Emergency Economic Powers Act (IEEPA) of 1977.

Sect. 301 authorizes the administration to respond to any action by a foreign government that violates a trade agreement or hurts US commerce, but IEEPA gives the president the authority to respond to “any unusual and extraordinary threat” from outside the U.S., “to the national security, foreign policy, or economy of the United States”, after the president has declared a national emergency, explains Washington, D.C., attorney Jessica Wasserman, a partner in the international and government relations group at Greenspoon Marder.

“Under IEEPA, the president can take a variety of actions to curtail international commerce, including raising tariffs.”

Sect. 301 requires a formal regulatory process with the publication of a proposal and comment period. IEEPA, however, “allows him to do what he wants,” that is, unless, someone can successfully defeat him in court, said Wasserman. 

“The use of IEEPA to impose tariffs, which the Trump administration has considered before, is thought by many experts to be highly likely to face significant legal challenges,” she said.

Edward Alden, a senior fellow on the Council on Foreign Relations, a longtime trade analyst and a professor at Western Washington University, in Bellingham, Washington, speculated on Twitter, however, that such a defeat in court may not be forthcoming.

“This is clearly an enormous abuse of IEEPA,” Alden tweeted on Thursday, shortly after Trump’s announcement. “But who will stop him? The courts? The Congress? It seems the only real check on Trump is if the markets plummet, and investors seem oblivious to the dangers here.” 

Global markets dropped slightly on Friday following the news, CNN reported. Japan’s Nikkei slumped 1.6%, while Britain’s FTSE 100 index fell 0.8%, stocks in Germany dropped 1.3%, and in France they fell 1%.

High-ranking Republican lawmakers have already expressed concern. 

Charles Grassley, the Iowa Republican who chairs the Senate Finance Committee and  long-time member of the Agriculture Committee, described Trump’s promise to place tariffs on Mexico as a “misuse of presidential tariff authority and contrary to congressional intent.”

He said it would jeopardize passage of the US Mexico Canada [trade] Agreement (USMCA), Trump’s prized effort to make good on a campaign promise to replace the North American Free Trade Agreement. The deal requires low tariffs on all three countries.

Even Mitch McConnell, the Kentucky Republican who serves as Senate majority leader and has frequently backed Trump, even in relation to some of his most controversial border-related moves, distanced himself from the Mexico tariff threat on Friday.

“As our third-biggest trading partner, a healthy and vibrant economic relationship with Mexico is a vital service source of our joint prosperity. Any proposal that impacts this relationship deserves some examination,” he said.

Also not a fan of the Mexico tariffs is Robert Lighthizer, the president’s own US trade representative, who is reportedly similarly concerned about the ramifications for the USMCA, according to the Wall Street Journal. 

The National Fisheries Institute (NFI) also weighed in late on Friday, saying that US consumers will ultimately pay the cost of the tariffs and US businesses will find it harder to plan for the future.

“Seafood from Mexico is part of an important supply chain that provides U.S. consumers with variety and value,” said NFI president John Connelly in a statement sent to Undercurrent.  “Denying Americans choices at retailers and restaurants does nothing to address the completely unrelated immigration issues cited in the May 30 White House statement.”

What’s more, the cost of these tariffs will ultimately be paid by U.S. consumers trying to feed their families, as these taxes are levies paid by the importing country, not the exporting country.

When might the tariffs end?

Like the US-China trade dispute, it’s hard to tell when the president might call off the future tariffs on Mexico. His tweet suggested all illegal immigration into the US would have to stop, and acting White House chief of staff Mick Mulvaney told reporters on Thursday that the administration “did not set a specific percentage or specific number” for its threshold to remove the tariffs.

“We are going to judge success here by the number of people crossing the border and that number needs to start coming down immediately in a significant and substantial number,” Mulvaney said. “So we’re going to take this and look at it on a day to day and week to week basis.”

Kevin McAleenan, the acting secretary of Homeland Security, told reporters Thursday that the month of May is on pace to be the highest month for illegal crossings of the border in more than 12 years and will significantly surpass the record 109,000 in April.