The Washington Post has a transcript of President Trump's January 27 phone call with Mexican President Enrique Peña Nieto. Here are some excerpts related to trade:
Trump:
... I consider you a friend and I consider Luis, the person working with you, a very smart man. To be very honest with you, I did not want to have a meeting. I did not want to meet with Luis, I did not want to meet with Mexico, I did not want to meet with anybody. It was only because of a very good relationship that Jared Kushner has with Luis that these two decided to meet and discuss, but I was not really in favor for that meeting. I felt that we should do a much simpler solution, and that solution was tariffs at the border, because the United States has a trade deficit with Mexico of $60 billion. And the United States will not have those deficits anymore. We do not mind a small deficit, and we do not mind a little time to get there. But we cannot do this and we cannot sustain like this. We will not be the United States anymore. And we cannot listen to this. I was voted on the basis that we are losing so much money to Mexico in terms of jobs, factories, and plants moving to Mexico. We cannot do this anymore and I have to tell you it is not sustainable.
... What I want is fair tariffs at the border, and I want to be fair because I want a great relationship with Mexico. ... But I did not want Jared to meet with Luis. I just wanted to very simply – and with a high level of precision – we put on a border tariff so that products coming in from Mexico to the United States would be taxed at a rate to be determined. But you know, it could be 10 percent or 15 percent or it could be 35 percent for some products that, for example, are jobs ripped from their foundation and moved to Mexico. Most would be in the 10 to 15 percent range. That would make us very even with Mexico and it would make a lot of sense. Now, Mexico may in turn try to do something like that to us. Since we have such a deficit, it gives us the advantage. In addition, I was going to very strongly say this to Mexico and other countries – that everything is reciprocal. So if Mexico adds a tax, we will add a tax.
We have a country that has been led by people who have no business understanding. We are living off the success of the past – off the fat of the past – and we cannot continue to do this. So anything another country imposes on us, we would automatically impose a tax on them, so it would not be very wise for them to do the taxing. So I did not want to have the meeting, I just wanted to go along with the very reasonable tax plan we were drawing up for Mexico, and that is honestly where I am right now. When I heard about the meeting, I was happy about it, beyond the fact that I hoped we would remain friendly with you. I was not at all disappointed in the meeting, because Mexico, honestly, through smarter leadership, more cunning leadership — and you are in that category very much so – the very smart leadership in Mexico has taken advantage of the United States. The people of the United States know this. In Ohio, they are having rallies for Trump right now because Trump has taken a hard stance on Mexico. We lost a lot of factories in Ohio and Michigan and I won these states – some of these states have not been won in 38 years by a Republican and I won them very easily. So they are dancing in the streets. You probably have the same thing where they are dancing in your streets also, but in reverse. I just want to put a border tax on, relax, and then we do not have to have meetings. That being said, if you want to have meetings and you continue to have meetings, I am willing to wait. Jared feels so strongly that you and he will be able to work out a deal – meeting with Luis and his team – but I am very happy to not to have any more meetings and just put a border tax on, like everybody else does. Right now, every nation in the world is charging us what we are not putting on anyone. We have been led by people who really hurt our country. We will not let it go on anymore. With that being said, if you guys want to continue the talks or if you do not want to continue the talks, it is okay, but I would only like to know your thinking on it because I am willing to go either way.Pena Nieto:
Yes, Mr. President. The proposal that you are making is completely new, vis-à-vis the conversations our two teams have been having. But I have gathered this from the position that you have taken in terms of trade. I think we have the route to continue having balanced trade between both nations. And frankly, to tell you the truth Mr. President, I feel quite surprised about this new proposal that you are making because it is different from the discussion that both of our teams have been holding —
Trump:
Enrique, if I can interrupt – this is not a new proposal. This is what I have been saying for a year and a half on the campaign trail. I have been telling this to every group of 50,000 people or 25,000 people – because no one got people in their rallies as big as I did. But I have been saying I wanted to tax people that treated us unfairly at the border, and Mexico is treating us unfairly. Now, this is different from what Luis and Jared have been talking about. But this was not a new proposal – this is the old proposal. This was the proposal I wanted. But they say they can come up with some other idea, and that is fine if they want to try it out. But I got elected on this proposal – this won me the election, along with military and healthcare. So this is not a new proposal this is been here for a year and half.
Pena Nieto:
Yes, I do understand what you are saying, Mr. President. On this public proposal, I understand it is not new but what I am getting at is that it is new in terms of the type of dialogue we have been having. I would insist very specifically, Mr. President, for us to find a route towards the dialogue to find a balance in our trade. I think that what you have said has weaknesses, as you said, regarding the lack of modernization. I think we can continue working towards building the construction of a new framework to continue our trade relationship among the three countries that are part of NAFTA.
Trump:
Now getting back to the taxes for second, I have been given as President tremendous taxation powers for trade and for other reasons – far greater than anybody understands. The powers of taxation are tremendous for the President of the United States and if you study that you will see what I mean. That is why I did not want to have the meeting, I just wanted to tax the border. With all that being said, I would love if you want to reinstitute the meetings between Luis and a staff that I will assemble in the United States. Our Secretary of Commerce, Mr. Ross, will be approved very soon and we have a great team of people – Gary Cohen and lots of others – we have lots of great talent. And talent that wants things to happen. They are dealmakers, they are not obstructionist. We have some of them, but so do you of course. With that being said, if you would like to try and work a deal, that is okay. But if we cannot work a deal, I want to tell you we are going to put a very substantial tax on the border coming into the United States because, honestly, we will not want your products unless your products are going to be taxed. I do not want the products and lesser tax. And what that will mean is factories and plants will start to be built in the United States because the taxes will be too high in Mexico. I do not want to do that if we can work out a deal, so Jared Kushner and Luis can have the teams work out the deal. ...
... I think the most popular thing for me would just to put a tariff on the border. But I am willing to see if they can finish up a plan. From what I hear, they have great discussions and it looks good. I guess they have to wait 90 days – there might be a statutory period or something like that and that might be too bad. But that is okay, so we will get Congress involved and let them work through the statutory period. If you want to do that, Enrique, I am good with doing that. And I want to reiterate, you and I will always be friends do not worry.
So what to make of all this?
Trump seems pretty convinced that the U.S. bilateral trade deficit with Mexico is bad somehow, and results in fewer American jobs. In fairness, this view is not unique to Trump -- many politicians believe this. Most economists disagree strongly (as do I), but that hasn't seemed to change many people's minds. I have been puzzled for a long time now by concerns about the U.S. trade deficit. Sometimes I think maybe it's just the use of the term "deficit." A deficit sounds bad to people, and perhaps they equate it to the budget deficit, through which the government borrows money that it later has to repay. Maybe they think a trade deficit with Mexico means we have to write Mexico a check for the amount of the deficit? I have jokingly suggested rebranding the trade deficit as the "consumption surplus." With regard to lost jobs, it doesn't seem to matter how well the economy does and how low unemployment gets. Some people still think the overall number of jobs is lower as a result of trade deficits, and that all of our bilateral trade deficits need to be fixed somehow to "bring jobs back." (Part of this may also relate to the classic seen/unseen problem -- people see a particular factory close, but don't see the new jobs that were created somewhere else.) Is there anyone within the administration who can change Trump's mind on these issues? I hope someone is trying.
Another issue is the use of border/import taxes. My best guess is that Trump believes Mexico imposes them and the U.S. does not. His view might be because he does not realize that NAFTA eliminated (almost) all tariffs; or he might have been told by someone that Mexico imposes a VAT on imported goods. It would be nice if someone could clarify both of these issues for him -- Mexico does not impose ordinary tariffs on U.S. goods, and the VAT is basically a non-discriminatory consumption tax that is not unlike U.S. state sales taxes. If he understood these points, would his position on a U.S. tariff/tax on Mexican goods change? He talks about reciprocity, and it's not exactly reciprocal if the U.S. imposes a tariff while Mexico does not. Or do his feelings about the bilateral trade deficit make each side's tariff levels irrelevant to him?
One final point is that he does not seem to recognize the cost to American consumers of imposing a tariff on foreign goods. Obviously, a tariff will drive up the price of goods for Americans and limit their consumption choices. That seems like a simpler point than the other two, and, again, it would be nice if someone could explain it to him.
