Just a few days ago, I was on the phone with some financial analysts in Mexico. We were all astonished at how sanguine people there were about President Trump’s trade threats. We expected him to pull the trigger.
Now he’s done it, and I don’t think anyone south of the border (or north either, to be honest) has a clue what to do. They’ll “retaliate,” but as markets they’re too small to really have much leverage.
But can he do this? Let me lift what I wrote in 2017, with some edits. Additions are in italics, recissions are strikethroughs.
A 20% tax on Mexican imports? Why, yes.
Now the Trump administration is floating the imposition of a 20% 25 percent tax on Mexican imports to pay for the wall. Obviously, this would violate NAFTA, but the U.S. President likely has the unilateral authority to impose such a tax.
The International Emergency Economic Powers Act of 1977 gives the President the power to “investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States.”
Presumably, the tax would be considered regulation of importation under the above paragraph.
Now, the Economic Powers Act also compels the President to “consult with the Congress,” but it is not clear that imposes a significant limit on his tax powers.
Alternatively, President Trump could use the Trading with the Enemy Act of 1917, which Richard Nixon invoked to impose a 10% import surcharge in 1971.
Either way, the Trump tax could be appealed to the U.S. Court of International Trade (USCIT). It turns out that there is some case law on this. In United States v Yoshida International, USCIT’s predecessor ruled that the courts would not challenge the validity of a Presidential declaration of a state of war or national emergency but would check to see that the remedy imposed was appropriate to the nature of the emergency. I suppose that the “emergency” would be is the existence of illegal immigration and drug imports from Mexico and Canada and the remedy would be the wall. (Judging from U.S. v Yoshida, I do not think that the tax would stand under Trading with the Enemy but it might under the Economic Powers Act. Either way, it could be in place for years.)
I excised stuff about NAFTA here because there is no more NAFTA.
The Trump Administration planned this during the first term
Now back to 2024. I excised the parts about NAFTA, because there is no more NAFTA.
Fun fact: these tariffs would have been illegal under the NAFTA Implementation Act, which wrote NAFTA into American domestic law. Now, the courts might have ruled that the Economic Powers Act supercedes the NAFTA Implementation Act, but the legal grounds would be tricky.
But the first Trump administration rewrote NAFTA into the USMCA! And there are some big difference between the two:
NAFTA, Article 2102, “National Security”:
Subject to Articles 607 (Energy - National Security Measures) and 1018 (Government Procurement Exceptions), nothing in this Agreement shall be construed:
(a) to require any Party to furnish or allow access to any information the disclosure of which it determines to be contrary to its essential security interests;
(b) to prevent any Party from taking any actions that it considers necessary for the protection of its essential security interests,
(i) relating to the traffic in arms, ammunition and implements of war and to such traffic and transactions in other goods, materials, services and technology undertaken directly or indirectly for the purpose of supplying a military or other security establishment,
(ii) taken in time of war or other emergency in international relations, or
(iii) relating to the implementation of national policies or international agreements respecting the non-proliferation of nuclear weapons or other nuclear explosive devices; or
(c) to prevent any Party from taking action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security
So under the old rules, tariffs were only kosher in regards to:
The arms trade;
Military procurement;
Wartime needs;
Nuclear proliferation;
Resolutions issued by the United Nations.
The USMCA is a lot simpler:
Article 32.2: Essential Security
Nothing in this Agreement shall be construed to: (a) require a Party to furnish or allow access to information the disclosure of which it determines to be contrary to its essential security interests; or (b) preclude a Party from applying measures that it considers necessary for the fulfilment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.
And that’s it! If a government decides that a tariff is necessary to protect its own “essential security,” then it’s okay under the USMCA. Note the switch from “national security” to “essential security”: the drafters wanted to be sure to use a term that had no established meaning that a court might exploit.
It sure seems like the Trump administration thought of the potential NAFTA problem during its first term and made sure that the USMCA would be easy to effectively abrogate without formally abrogating it.
There seems to be no endgame
You can read the President’s announcement yourself. The problem is that there don’t seem to be any specific asks attached to the tariffs, other than, well, preventing illegal migration and ending the fentanyl trade. For Canada, that means there is truly nothing actionable, since neither migration nor drugs are much of the problem on that front. Mexico, conversely, is a massive transshipment route for drugs and migrants. Mexico could do more on migration, but it isn’t exactly sitting on its hands. What specifically does Washington want President Sheinbaum to do? As for crime, well, the Mexican federal government should have suppressed its violent crime problem a long time ago. But ending the drug trade is a different issue and not something any government anywhere in this hemisphere has done.
So as my students concluded during the first Trump administration, the point of these tariffs seems to be … to have tariffs. But why hit the North American economies that are so intertwined with the United States harder than China? Or not hit the rest of Asia at all? My modal assumption is that the President wants to contain the potential inflationary impact. A darker possibility is that the CCP has corrupted him. A brighter interpretation is that the whole thing is a shot across the People Republic’s bow.
The Yale Budget Lab has some predictions about the inflationary impact, but I don’t trust them. Why not? Well, why is natural gas supposed to get more expensive, and why is the impact on auto prices only 3.9%? We really don’t know much prices will rise, because we don’t know how much the peso and the loonie might fall. But I doubt price will rise enough to force the president into walking the tariffs.
It all does seem pretty stupid. The 25% tariffs won’t cause an American recession. But the countries seem targeted to maximize economic damage to the United States. And the trade levies will almost certainly cause a Mexican recession, which helps no one. Plus, they hurt allies more than they hurt China.
My short-term prediction is that the Trump administration is going to hand out exemptions like candy.
My longer-term one is that unless inflation takes off, or the Trump administration has a secret ask from these countries that it is not announcing, then these measures will be followed by greater-and-greater tariffs against the rest of the world.

I kind of doubt that there’s a secret ask, that doesn’t seem to be President Trump’s style. But maybe I’m wrong about that.
And now to rewrite my classes on international trade. Again. Which is actually kind of fun, but I’d prefer not to be doing it for this reason.