Mexico dominates U.S. imports of heavy-duty trucks, accounting for 82.31% of the total this year. The United States also has its second-largest deficit with Mexico.
ustradenumbers.com
Add heavy trucks and pharmaceuticals to the long list of imports President Trump has targeted for tariffs in his quixotic battle to rid the nation of its $1 trillion annual trade deficit.
Trump announced on Thursday he was imposing 100% tariffs on branded or patented pharmaceutical products – essentially an embargo – and 25% tariffs on commercial trucks, effective Oct. 1.
Terrible? With pharmaceuticals, maybe not, since about 90% of all prescriptions filled in the United States are generics, according to the U.S. Food and Drug Administration. They are not affected. In addition, any drug maker that is building a manufacturing plant in the United States is exempt. Might need to switch this one to toothless.
What about those heavy-duty trucks? Terrible?
Maybe not, since 82.31% of trucks (HS 8704) imported this year come from Mexico, mainly through Port Laredo and Eagle Pass, Texas, and another 13,40% from Canada. That’s 95.71% of the $24.1 billion total, according to U.S. Census Bureau data through July, the latest available.
Mexico and Canada are, of course, the “M” and the “C” in USMCA, the treaty Trump negotiated in his first term that has allowed imports to enter the United States without being subjected to tariffs if they were compliant with the treaty, as had been the case with the treaty’s successor, NAFTA.
But maybe so. Maybe it will be terrible for commercial vehicle manufacturers Daimler, Paccar, Volvo and Traton, all with manufacturing in Mexico.
That’s because earlier this year, when announcing 25% tariffs that involved imports from USMCA partners Canada and Mexico, Trump followed with a “carve out,” meaning those imports that complied with the treaty terms would not be affected.
In this case, the Administration has not yet clarified whether they would be exempt. In fact, because Trump made the announcement on social media and there has not been a formal notice published in the Federal Register, as is customary, the targeted trucks might have a more specific six-digit or even 10-digit harmonized system code.
But Trump has issued a number of carve outs since his April 2 “Liberation Day,” announcing a trade war with the world. He has issued carve outs for smart phones; oil from Canada, which was being hit with 35% tariffs; and gold from Switzerland, which was being hit with 39% tariffs.
Amid the numerous carve outs, reversals and repeated pauses since April 2, a Financial Times columnist created the “TACO theory” – Trump Always Chickens Out.
If Trump issues a carve out for these vehicles coming from Mexico and Canada, move the needle from “Terrible” to “Toothless,” since the pronouncement would affect slightly more than 4% of all U.S. imports.
Keep in mind that while the U.S. imports in this category totaled $24.10 billion through July, heavy-duty truck exports totaled $10.60 billion, with slightly less than 70% bound for Canada.
Two final points: Trump declared tariffs on pharmaceutical products and heavy-duty trucks as well as certain furniture, kitchen cabinets and bathroom fixtures on the grounds that importing them threatened national security. These are called Section 232 tariffs, first becoming law in 1962.
For starters, that would seem to fly in the face of why people take medicine. It’s hard to see how bathroom fixtures, kitchen cabinets or furniture threaten national security. Even those big commercial vehicles could only become a threat on U.S. soil, when you put an American behind the wheel, but national emergency?
Second point. The announcement largely takes aim at two countries, countries with which the United States has its largest trade deficits: Mexico and Ireland, both members of what Trump called the “Dirty 15.”
The U.S. deficit with Mexico, which stood at $112.59 billion through July, was second only to the deficit with China, which was $128.58 billion. The U.S. deficit with China was five times that of Mexico as Trump began his trade war with the Asian nation in his first term. Mexico is also the United States’ largest trade partner and largest source of imports. It ranks second as a buyer of U.S. exports.
The U.S. deficit with Ireland, meanwhile, is the fourth-largest, totaling $84.81 billion through July, an increase of 88.99% from the same seven months last year, almost four times the rate of increase for the U.S. deficit with the world.
Trump’s announced tariffs on pharmaceutical products and heavy-duty trucks, which have received the most attention, are likely to be more toothless than terrible, if trucks are indeed “carved out,” while furniture, bathroom fixtures and kitchen cabinets seem particularly odd.
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