Trade Dispute Flares Between U.S., Mexico Mexico says it will impose tariffs on a broad range of American products in response to the cancellation of an American program that allowed Mexican trucks to transport goods throughout the U.S. One expert says he doubts Mexico wants to stoke a trade war.

Trade Dispute Flares Between U.S., Mexico

Trade Dispute Flares Between U.S., Mexico

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If there's one thing that just about every economist agrees on right now, it's this: Rising protectionism is a bad thing and ought to be avoided. Yet, that is just what is developing between the U.S. and Mexico.

The first shot in this trade skirmish was fired last week by Congress when it shut down a program under which Mexican trucks were allowed on U.S. highways. In retaliation, the Mexican government said Monday that it would impose tariffs on a variety of U.S. products entering Mexico.

The issue of Mexican trucks on U.S. highways goes back 15 years to the signing of the North American Free Trade Agreement, NAFTA, in 1994. A provision allowing U.S. and Mexican trucks to operate across the border was part of NAFTA but, from the beginning, that provision was vigorously opposed by the Teamsters union, which represents U.S. truck drivers.

At the time, the Teamsters said Mexican trucks weren't safe. So, then-Transportation Secretary Federico Pena went to the border to investigate and reported back to the Clinton White House that he saw no reason to block Mexican trucks. But U.S. Trade Representative Mickey Kantor, after hearing from the Teamsters, intervened and got the White House to suspend the trucking provision.

"I was very distressed, because I thought this was an integral part of the agreement," says Richard Feinberg, the Latin America specialist on the White House staff. He spearheaded Clinton administration efforts to promote NAFTA. "I remember that night running around and looking for other senior policymakers in the area of international economics. They all agreed with me that this was very lamentable, but they said, 'Well, Richard, that's the reality of domestic politics and the way it impinges on international economics.' Lesson learned."

Go-Ahead For Pilot Program

The provision was put on hold. In 2007, the Bush administration was finally able to implement a pilot program under which Mexican trucks could cross the border, provided safety standards were met. According to the latest figures from the Transportation Department, U.S. trucks are now more likely than Mexican trucks to be taken off U.S. highways for safety violations.

But Congress killed the pilot program last week at the urging of the Teamsters union and their supporters. For the Obama administration, the issue set its commitment to free trade principles against its commitment to organized labor. And White House spokesman Robert Gibbs chose his words very carefully.

"Congress has opposed the project in the past because of concerns about the process that led to the program's establishment and its operation," Gibbs said. "The administration recognizes these concerns."

Gibbs went on to say that the Obama administration will now work with Congress and the Mexican government to come up with yet another way to allow Mexican trucks to operate safely on U.S. highways. But the Mexican government upped the ante Monday by announcing it will impose tariffs on about $2.4 billion worth of exports from 40 U.S. states.

Avoiding A Trade War

Claudio Loser, of the Inter-American Dialogue, says he doubts the Mexican government really wants to start a trade war.

"It is more saying, 'Look, if you want to hurt us, we can hurt you the same way, and you better understand Mexico is an important trading partner, and better sit down and negotiate," he says.

Still, the dispute shows how sensitive trade issues are right now, given the precipitous job losses in the U.S. as in other countries.

Sen. John McCain, who vigorously advocated the free trade cause during the presidential campaign, was quick to criticize President Obama on Tuesday for bowing to special interests and closing the border to Mexican trucks.

"What the president is sending is a message to the world that protectionism is on the rise in America, which history shows us is a very bad policy to pursue," McCain said.

The Obama administration would agree with the last point, but opposing protectionism in this time of economic stress won't be easy.