STEVE INSKEEP, HOST:
His fellow Republicans say they are very unhappy, but President Trump says they would be foolish to try and stop his plan to impose tariffs on every single thing that Americans buy from Mexico. The president is going ahead, imposing these taxes and steadily increase them, he says, even as Mexico's foreign minister meets Vice President Pence today.
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PRESIDENT DONALD TRUMP: We are going to see if we can do something, but I think it's more likely that the tariffs go on. And we'll probably be talking during the time that the tariffs are on, and they're going to be paid.
INSKEEP: Let's get the view from both sides of the border now. NPR chief economic correspondent Scott Horsley is in Washington. Scott, good morning.
SCOTT HORSLEY, BYLINE: Good morning, Steve.
INSKEEP: What makes the president so determined to go ahead?
HORSLEY: He holds Mexico partly responsible for the large number of migrants who have been crossing the southern border. Even though a lot of these border crossers are families from Central America, they're coming through Mexico. And Trump wants the Mexican government to do more to stop them.
To underscore that message, he has ordered this tax starting at 5% on everything the U.S. buys from Mexico on Monday. And Trump warned that unless Mexico does crack down on the migrants, those tariffs are going to steadily ratchet up.
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TRUMP: And every month, those tariffs go from 5% to 10% to 15% to 20% and then to 25%. And what will happen then is all of those companies that have left our country and gone to Mexico are going to be coming back to us. And that's OK.
HORSLEY: Now, Trump's made similar claims about companies coming back to the U.S. from China as a result of tariffs. There's been little evidence of that so far. Some companies have shifted operations from China to other countries. And, in fact, some have shifted from China to Mexico, and now they're in the president's sights once again.
INSKEEP: OK, so a lot of powerful Republicans are not happy. John Cornyn, the Texas Republican, is quoted by The New York Times and the Financial Times saying, we're pointing a gun at our own heads, because, of course, Americans pay these taxes, and Americans get a lot of economic benefit out of Mexico. But are they going to do anything more than express concern?
HORSLEY: Congress could vote to reject these tariffs, but despite all the grumbling, it's not clear Republicans are willing to buck the president quite that directly, at least in the numbers that would be necessary to overcome a veto.
However, Steve, lawmakers do have some other leverage to get what they want. The White House needs the support of Congress to pass the new North American Free Trade Agreement that the president wants, and lawmakers have used the threat of withholding that support in the past to get the president to lift tariffs on Mexican steel and aluminum. So they could try something like that.
INSKEEP: Has the threat of tariffs with - if I'm not mistaken - the No. 1 U.S. trading partner, on top of the trade war with China and the various other trade disputes - is this beginning to affect the economy?
HORSLEY: There have been warnings that if the tariffs hurt the economy in Mexico, that could have the perverse effect of driving even more migrants north across the border. Here in this country, there is some worry that the tariffs could produce a sharper-than-expected economic downturn.
The last time the Federal Reserve's interest-rate-setting committee met, trade tensions seemed to be easing. Now we're seeing those tensions heat up again. Fed Chairman Jerome Powell offered some reassurance this week that the central bank is keeping an eye on that.
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JEROME POWELL: We are closely monitoring the implications of these developments for the U.S. economic outlook. And, as always, we will act as appropriate to sustain the expansion with a strong labor market and inflation near our symmetric 2% objective.
HORSLEY: Some investors took that as a sign the Fed might be open to cutting interest rates in the not-too-distant future. That triggered a big rally in the stock market yesterday, even though, Steve, you could see it as a sign that the Fed is getting nervous about this trade war.
INSKEEP: OK, so that's the view in Washington from NPR chief economics correspondent Scott Horsley. Scott, thanks very much.
HORSLEY: You're welcome.
INSKEEP: Now let's go south of the border to NPR's Carrie Kahn. She's in Tijuana eating excellent food and speaking with workers and covering this story. How are people responding?
CARRIE KAHN, BYLINE: Well, I came to Tijuana because I wanted to talk to people that are most - would be most affected by the tariffs. You know, in this northern border city, there's a - teeming with factories here that are manufacturing all sorts of products for the U.S. And I went to this rural taco truck outside some of the factories.
And I wanted - I was really surprised what workers are saying. I thought they would say they're worried, they're concerned. But here, listen to this one worker, Juana Torres. And she was grabbing a quick breakfast burrito during a break.
JUANA TORRES: (Speaking Spanish).
KAHN: She said, why should she worry - waste time worrying about what could happen to us because of this Mr. Donald Trump? She and others on her crew are saying the same thing. They just don't believe his threats anymore. They don't think he's going to follow through on them.
And one man told me - he said, he picks a fight with the world, it's like, and then backs down, and he's going to back down again. They all just seem kind of tired of Trump's attacks on Mexico. I was surprised to hear that.
INSKEEP: And this is something we're also hearing north of the border, I should note. A lot of Republicans are dismayed with the president's course here. But some of them are saying, I don't think this is really ever going to happen. And there are some days left before the first round of tariffs would take place. We don't know what's going to happen.
Aren't Mexican officials preparing to retaliate, though, if the tariffs do go ahead?
KAHN: Yes. They say - not publicly, but they say that they are considering some retaliatory moves on pork goods that are coming to the U.S., maybe some agricultural products, maybe some U.S. bourbon.
But officials, especially the president here in Mexico, are trying to remain calm and urge a negotiated settlement to avoid that tit-for-tat tariffs. And it appears that the Mexican president's calm, nonconfrontational approach to Trump, you know, is working for him - maybe not so much with political opponents here, but two polls just came out, and they show that Mexico's - Mexicans approve of their president's handling of the situation for now.
The problem is if it starts taking an effect on the peso, and the peso has dropped since these threats by Trump.
INSKEEP: You know, Carrie Kahn, I do want to know one more thing. It is true, if we look over the past couple of years, the president has made a lot of threats that have then gone away. He's backed down. He's gone another course - whatever. But there are also times that he goes through with a threat, and one of them involves tariffs. He's imposed tariffs on China and then increased the tariffs on China.
So let's say the president does go ahead with these 5% tariffs that then would gradually increase. What happens to the economy in Mexico if that's the case?
KAHN: Well, I was talking to one state official here in the state of Baja California. He was saying if that happens, and they really don't believe it will, but if it does happen, they said that that's a long - it would take months before that really starts affecting the economy.
And what people are really working - worried about, and those workers, too, are worried about, is the peso taking a hit. And we've seen it plummet since Trump announced the tariffs threat last week. And that's what people are worried about because that'll have an effect on border communities right away, and it already is, because when the peso drops, it is weak, people stop buying locally and instead spend their money across the border, like, for example, here in San Diego, Calif. And that has an immediate detrimental effect on Tijuana's local economy.
INSKEEP: Totally changes your buying power, whether you're involved with the broader economy or not.
KAHN: Exactly.
INSKEEP: Carrie, thanks so much.
KAHN: You're welcome.
INSKEEP: NPR's Carrie Kahn. Transcript provided by NPR, Copyright NPR.
