Trump Threatens Tariffs on Guatemala
After Guatemala's high court ruled that country could not enter into an agreement that would deny Hondurans refuge in the U.S. unless those migrants applied for asylum in Guatemala, President Donald Trump lashed out July 23 on Twitter. "Guatemala, which has been forming Caravans and sending large numbers of people, some with criminal records, to the United States, has decided to break the deal they had with us on signing a necessary Safe Third [country] Agreement. We were ready to go. Now we are looking at the “BAN,” Tariffs, Remittance Fees, or all of the above. Guatemala has not been good. Big U.S. taxpayer dollars going to them was cut off by me 9 months ago," he wrote.
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There is a free trade agreement with Guatemala that spares most goods from tariffs, the Dominican Republic-Central America Free Trade Agreement, or CAFTA-DR, which came into effect in 2006 and 2007 for most countries in the pact. CBP Executive Assistant Commissioners Todd Owen and Brenda Smith weren't aware of the president's tweet or the possibility of tariffs on Guatemala until asked by International Trade Today during a July 23 meeting with reporters at the CBP Trade Symposium in Chicago. Smith said the discussion around possible tariffs on Guatemala related to immigration is likely similar to the tariffs threatened on Mexico under the International Emergency Economic Powers Act.
“Our goal with any of these actions” is to use CBP's expertise to “provide as much simplicity to that remedy” as needed, Smith said. Asked whether CBP is likely already providing its expertise or would need further official instruction, Smith said, “it happens all kinds of ways,” but “the fact that we are not aware of this one means we are not probably involved at this point.” The remedies are typically worked through an extensive interagency process even when initiated prior to an interagency review, Smith said.
Steve Lamar, executive vice president of the American Apparel and Footwear Association, said that although Guatemala is not the biggest player in CAFTA in apparel -- that would be Honduras, the sixth largest source of exports -- the industry treats the CAFTA region as a region, as Honduran factories may use Guatemalan inputs, or El Salvadoran inputs. "Much like our relationship with Mexico, we've been very strongly against any additional tariffs against our trading partners," Lamar said. According to the Commerce Department, Central America and the Dominican Republic represent the third largest U.S. export market in Latin America, behind Mexico and Brazil.
Guatemala is the 14th largest apparel supplier by volume to the U.S, but it only has 1.3 percent market share. CAFTA countries as a whole have a 10.6 percent market share in apparel. China is the top producer by far, Vietnam is No. 2, Bangladesh is No. 3, Indonesia is No. 4, and India is No. 5. Lamar said that companies that want to move out of China because of the threat of Section 301 tariffs, or because 301 tariffs are already being levied on their hats or accessories, have a hard time deciding where to go. Prices are rising in Bangladesh and Vietnam.
"Moreover, the president continues to threaten tariffs in a lot of these countries, Guatemala's just the latest," Lamar said. "There might be a 301 against India. ... The president sort of casually flirted with some tariffs [against Vietnam] in that Fox [News] interview a few weeks ago." And, he noted, the threat of a 5 percent tariff on all Mexican imports, despite NAFTA, "is still out there."
"The problem that you run into when you look at sourcing these days is [that] everything is [an] out of the frying pan into the fire kind of a situation."
But Lamar said some companies are starting to think the president is like the boy who cried wolf, and this talk of tariffs won't come to pass. The fact that the Mexican tariff threat was so detailed, and it didn't happen, "that gives you some hope that this is going to be resolved."
If there were to be tariffs on Guatemalan imports, would there be a way to challenge the action legally, given that it contradicts the terms of CAFTA? Lamar said firms were actively considering that during the Mexico threat, and for CAFTA, it's also something industry players are asking. Lamar said if you tax remittances "or you put a tariff on their exports to the U.S., you hurt their economy. When you hurt their economy, people in Guatemala go, hmmm, I gotta go to the United States." He said if you want less migration from Guatemala to the U.S., "the worst thing you can do in that situation is to worsen the economic pressure." He added that Trump "doesn't look at it that way, but facts are stubborn things."