Application of New 30% Aug. 1 Tariff Rate on Mexico Remains Unclear
It remains unclear how the U.S. will apply a new 30% Aug. 1 tariff rate for Mexico that President Donald Trump announced over the weekend in one of his tariff letters.
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The Mexican Economy Ministry, which leads the trade negotiations with the U.S., issued a statement that they were forewarned about the letter on July 13, and they said then "that this was an unfair deal and that we disagreed," according to an unofficial translation.
They said both Mexican and U.S. officials agree they want to work to avoid the tariff coming to pass on Aug. 1, to find "an alternative that will protect businesses and jobs on both sides of the border."
The statement concluded: "In other words, Mexico is already in negotiations."
In the letter to Mexico, Trump wrote, "you will recall, the United States imposed tariffs on Mexico to deal with our Nation's Fentanyl crisis, which is caused, in part, by Mexico's failure to stop the Cartels...."
He said the cartels want to turn “all of North America into a Narco-Trafficking Playground,” and that cannot happen. However, he also said Mexico also has tariff and non-tariff barriers that cause unsustainable trade deficits, which would imply the country will be subject to reciprocal tariffs, which it has not been so far.
After a similar letter was sent to Canada July 11, a White House official reportedly said that the current USMCA exemption to tariffs on Canada still would apply, though the official said that could change (see 2507110038). The White House didn't respond to questions on this matter July 14.
Sidley trade attorney Ted Murphy, in a note to clients over the weekend, said these letters are to ramp up pressure on trading partners. "We expect President Trump’s rhetoric to increase as that date gets closer," he wrote.
He said he expects some deals to finish before Aug. 1, but that the announced rates will go into effect for some countries. However, the deadline could be extended again for major trading partners, he predicted.
"The volatility/tariff uncertainty companies have been dealing [with] will continue for at least the next few weeks, and more likely for the rest of the year," he wrote.
He also said it's not clear how the rates will be applied to any country, not just the USMCA question. "The letters imply that this new tariff will replace the existing Most Favored Nation/Normal Trade Relations rate of duty, but that is not entirely clear," he wrote. "We expect that these letters will be the subject of future litigation, particularly the Brazil letter (since it seems to tie the tariffs to domestic Brazilian political issues, rather than to a U.S. trade in goods deficit) and particularly if the Administration replaces the MFN/NTR rate of duty with a flat rate of duty per country."