The victory of leftist candidate Andrés Manuel López Obrador in Mexico’s presidential election shows populism can come in a variety of forms. Franklin Templeton Emerging Markets Equity’s Gustavo Stenzel and Santiago Petri offer their thoughts on what’s next for Mexico and its new president.

The left-wing coalition headed by Andrés Manuel López Obrador (known as AMLO) won by a landslide in Mexico’s general election on July 1, marking a dramatic change in the country’s political direction. He and his party overturned the (former) hegemonic Institutional Revolutionary Party (PRI), which presided over Mexico as a single party for more than 75 years.

Of the nine governorships at stake, the leftist coalition obtained five (Chiapas, Tabasco, Veracruz, Morelos and Mexico City).

During the campaign, AMLO vowed to transform many aspects of Mexican society, pledging to battle corruption and improve social welfare. While the people cheered AMLO’s stance on corruption – one of the main reasons the traditional ruling parties fared poorly in the election – the markets reacted cautiously to the results, with some investors fearing a less business-friendly administration.

In the first communication to the investment community, Carlos Urzua, who looks to become Mexico’s new finance minister, aimed to bring calm to the markets.

Economic Policy

Urzua conveyed that the principles of AMLO’s administration would be responsible macroeconomics, fiscal and debt management, an independent central bank and free-floating of its currency. He also pledged to maintain democratic communication with all political parties represented in Congress and said transparency would be a distinctive feature of the new government.

We are not really surprised by the new administration’s attempts to calm the market’s anxiety towards what is the first full-fledged left-wing experiment in Mexico. However, at this time, we think it’s too soon to take a view on the approach the new government will take.

The new administration expects to generate 2% of gross domestic product (GDP) in savings through a policy that includes centralization of procurement. AMLO implemented a similar policy in Mexico City when he was mayor there.

Procurement represents government- and state-owned enterprise purchases of goods, services and works, and reform in this area could bring reductions in both costs and corruption.

Another possible cost-cutting measure touted by the incoming administration is concentrating all social programs into a single large program, instead of having disseminated small social programs.

One significant component of AMLO’s policies is transparency, and he expects to obtain fiscal savings from success at stamping out corruption.

Social Policies

Meanwhile, AMLO stated his three main social policies will be: a) doubling pension for the elderly; b) a scholarship program for the youth; and c) medicine and food packages for the poor.

While the future is still uncertain, AMLO seems likely to shake up the status quo. He has obtained a strong mandate to change things and seems committed to delivering on his promises.

While his platform is seen as populist, AMLO’s most recent pronouncements have seemed to be more open to free trade. So, overall, the markets may not have much to fear from the “populist” label when it comes to Mexico. We don’t expect a radical change in terms of Mexico’s fiscal position or central bank policy as a result of AMLO’s win.

Potential Election Impact on Energy Reform

Since the nationalization of hydrocarbon resources in 1938, the fate of the energy industry and the health of public sector finances have been closely interlinked. Pemex, the national oil company, transferred royalties and taxes to the federal government, which represented up to one third of the fiscal revenues by 2014. The government’s burden on the national oil company resulted in declining production. Pemex had to pay between 50% to 60% of its revenues in royalties and duties, compromising its cash generation, which resulted in increasing leverage to finance its required capital expenditures plan.

In order to rescue Mexico’s government and the oil and gas industry from its financial constraints, comprehensive energy reform was approved at the end of 2013, granting private investors access to the Mexican energy sector. The reform allowed for new contracting agreements, including profit-sharing, production-sharing and licenses that widened alternatives to previous restrictive service-only contracts. The reform enabled more independence for Pemex for strategic investments and capital expenditure plans.

AMLO’s victory brings plans to revise and possibly delay new offerings for oil and gas exploration acreage, combined with plans to expand refining capacity and develop domestic gas supplies. Some of these proposals could be justified by the fact that the United States threatens to compromise trade links with its partners in NAFTA, which could negatively impact the reliability of US energy supplies.

However, the president-elect should realize that his attempts to re-channel resources back to the national oil company would likely weaken his plans to repair income and social policies aimed at restoring income distribution.

The energy reform of 2013 has kick-started US$200 billion in new foreign investment in Mexico for new production. In the downstream, 30 new private operators are aiming to open more than 1,700 gas stations, enabling the development of a competitive retail market. The reforms have been embedded in the Mexican Constitution and supported by implementation laws passed by Congress.

In our view, AMLO should realize energy reform is an asset to the country and key to unleashing productive forces that will enable Mexico to restore production levels.

Mexican Economic Outlook

The latest economic indicators have, overall, reflected solid momentum for the Mexican economy. In June, the Consumer Confidence Index reached its highest level in six months, climbing to 88.0. It was the eleventh consecutive annual increase. High consumer confidence, combined with a gradual disinflation process, a healthy labor market and credit availability, should help support good levels of private consumption this year. The positive state of the economy signals to us that the outcome of the election was not influenced by the economic cycle – which has been benign – but rather with demands placed on the control of crime and corruption.

If the new administration can deliver on its promises, while simultaneously preserving solid economic fundamentals, we are optimistic we could see healthy GDP growth in Mexico this year and in 2019.

MEXICO CITY 

The man proposed to be Mexico’s next foreign minister said Monday that the United States government under President Donald Trump has treated Mexico badly.

Marcelo Ebrard said one of his goals will be to look for areas of common understanding with the U.S. government.

“Taking harder positions is always going to be easier,” Ebrard said on Radio Formula. “The treatment that we have received by the United States has been terrible. Mexico and Mexicans have received very bad treatment.”

Ebrard did not offer examples of the bad treatment, but Trump has railed against Mexico since the start of his campaign, when he accused the neighbor of sending rapists and drug traffickers. He has repeatedly promised that Mexico will pay for a border wall between the two countries and threatened to walk away from the North American Free Trade Agreement if the U.S. doesn’t get a better deal.

Ebrard said President-elect Andres Manuel Lopez Obrador’s landslide victory July 1 will help in talks with the U.S. because it shows he has a mandate for change.

Lopez Obrador has said he’ll name Ebrard foreign minister after his Dec. 1 inauguration.

Ebrard and Lopez Obrador are scheduled to meet U.S. Secretary of State Michael Pompeo Friday in Mexico City.

Ebrard said Pompeo’s meeting was “courtesy” and a first opportunity to discuss the binational agenda.

He said he would coordinate with the current administration of President Enrique Pena Nieto to avoid undercutting positions that Mexico has taken in the renegotiation of the North American Free Trade Agreement.

But he added: “We have to look for how to better defend Mexico’s interests.”

Lopez Obrador at an event later Monday with business leaders repeated a pledge to build a new oil refinery “so that we can stop buying gasoline abroad.”

Most of that gasoline is purchased from the U.S. as Mexico’s production and refinery capacity have flagged in recent years.

^{It won’t grow faster without addressing weaknesses in education and productivity.}

With the election of Andrés Manuel López Obrador as president of Mexico, the perennial question resurfaces: Might Mexico see a higher rate of growth? Its economy has grown at a rate of about 2 percent per year for about a quarter century, about half the pace of other emerging nations.

The sad reality is that the new Mexican regime probably cannot improve its economic performance unless it can address basic problems with education and productivity.

Mexican economic policy gets many things wrong, and the country has a high level of corruption. But these are not the main hindrances to greater growth. China, which may be at least as corrupt, has grown in the 8 to 10 percent range for a few decades and more recently has exceeded 6 percent; India, which arguably has worse and more arbitrary restrictions on economic activity, has seen some years of 6 to 8 percent growth.

Nor can the scourge of drug violence fully explain Mexico’s anemic economy. Mexico’s south sees much less fallout from that violence, which has pushed the murder rate to more than 2,000 per month, yet it is one of the poorest regions of the country. It is the north, sometimes directly in the line of fire, which has grown most rapidly and attracted the most industry.

Instead, it is education that is arguably Mexico’s most fundamental problem. In most emerging economies, if you are ambitious and seek higher wages, you will invest in more education. Mexicans have traditionally had another choice — crossing the border to work in the U.S. Mexicans who make this choice can move from earning a dollar or two a day to 10 or 15 dollars an hour, though with higher living costs. It is hard to beat that boost simply by finishing high school or even college in Mexico.

So a lot of Mexico’s most ambitious lower-income people have an incentive to stop their education rather than invest in it. That in turn has harmed educational culture, and furthermore the incoming government has promised to reverse some positive educational reforms already underway. It is unlikely that Mexico will soon become more like South Korea, for instance, with its obsession with private tutors and higher education. Near the peak of Mexican migration last decade, about 15 percent of the Mexican labor force was working in the U.S.

You might wonder whether it is economically advantageous for Mexico to send its migrants to the U.S. It probably is still a net benefit, since they can save money and also send remittances back home. Mexico is in fact one of the wealthiest of the “middle income” countries, with a per capita annual income of about $18,100 (adjusting for differences in purchasing power), above that of Brazil (about $15,500), and still slightly higher than China (about $16,800).

Mexico’s second fundamental problem is productivity at the relevant margin. A lot of Mexican companies and plants have remarkably high productivity levels, including in cement, food products, television programs and automobiles. They compete successfully with companies from the U.S. Their success contributes to Mexico’s relatively high per capita income, but it is hard to boost productivity in those companies very much because they are already on the frontier, unlike their peers in, say, India.

The more typical Mexican enterprise is smaller. These companies have fairly low levels of productivity and many do not wish to grow much larger, to avoid both regulatory and tax burdens. Admittedly, this labor can be and often is absorbed into the more formal, more productive sectors of the economy, including exports. But the rate of absorption is quite slow, which in turn helps to set the slow growth rate of the economy. And in any case neither the high-productivity nor the low-productivity firms have that much room to grow within their respective categories, a major difference from many other emerging economies.

It seems incongruous to call Mexico “the Denmark of Latin America,” a label once applied to Uruguay. But that may be Mexico’s future. Denmark is among Europe’s most prosperous countries, yet since the late 19th century it has averaged only about 1.9 percent growth with no huge positive spurts. The Danish advantage has been to avoid a lot of backsliding and to reap the gains of ongoing compound returns. Mexico tends to have recessions that mirror its neighbor to the north, but the overall growth rate is much steadier than it was in the 1980s.

Fifty or 100 years from now, Mexico may be a huge surprise, economically speaking — without ever having been seen as a miracle. In the meantime, the Mexican discontent is likely to continue.

Texas business leaders are hopeful about future of U.S. trade relations with Mexico following the Mexican presidential election.
Mark Jones, political science professor at Rice University and chair of the school’s Latin American Studies program, predicts Andrés Manuel López Obrador, or AMLO, will be a very different president than his predecessor, Enrique Peña Nieto.

“Enrique Peña Nieto — his general goal was to not make waves with President Trump in the United States so that investment would continue. AMLO is a leftist and a populist and is likely to be far more combative with Trump,” Jones said.

And that concerns some Texas businesses who worry about the re-negotiation of the North American Free Trade Agreement, or NAFTA.
But Jeff Mosley, president and CEO of the Texas Association of Business, is optimistic about the future relationship between the Trump and theLópez Obrador administrations.
“Well, it could very well be that because both President Trump and President-elect [Lopez] Obrador draw from a populist vote base that they’ll have some very common interests and be more able to sit down and agree on the fundamentals of a NAFTA 2.0,” Mosley said.

But trade experts do not expect that to happen until well after López Obrador is sworn into office this December.

MEXICO CITY (AP) — Furious at spiraling corruption and violence, Mexican voters unleashed a political earthquake Sunday by electing a leftist firebrand as president and giving him a broad mandate to overthrow the political establishment and govern for the poor.

A late-night official quick count from electoral authorities forecast that Andres Manuel Lopez Obrador would win with between 53 percent and 53.8 percent of the vote, a remarkable margin not seen in the country for many years. A prominent exit poll predicted that his party allies were poised to score huge wins in the Senate and lower house, possibly absolute majorities in both.

Lopez Obrador, who campaigned on vows to transform Mexico and oust the “mafia of power” ruling the country, rode widespread voter anger and discontent with the governing Institutional Revolution Party, or PRI, of President Enrique Pena Nieto and had led opinion polls since the beginning of the campaign.

The PRI, which dominated Mexican politics for nearly the entire 20th century and recaptured the presidency in 2012, was set to suffer heavy losses not just for the presidency but in down-ballot races as well.

The proposed U.S. tariffs on car imports will have far reaching negative implications for the whole auto industry, according to Moody’s Investors Service.

The research firm said higher tariffs will cause problems across the car industry’s global supply chain.

“Tariffs on imported cars, parts would be broadly credit negative for industry,” Moody’s said in a note to clients Monday. “A 25% tariff on imported vehicles and parts would be negative for nearly every segment of the auto industry — carmakers, parts suppliers, car dealers, and transportation companies … Should any tariffs be levied, carmakers would need to absorb the cost to protect sales volumes while hurting profitability; increase prices to pass the tariff costs to customers, which could hurt sales; or a combination of both.”

President Donald Trump threatened a 20 percent tariff on auto imports from the European Union last week.

“Based on the Tariffs and Trade Barriers long placed on the U.S. & its great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!” he tweeted on Friday.

As part of tariffs expected to go online July 6, the administration also has put a 25 percent tariff on Chinese goods including autos.

Moody’s said American automakers will not be immune from the import tariffs. The firm noted both General Motors and Ford depend on imports from Mexico and Canada.

“Tariffs would be a negative for both Ford and GM. The burden would be greater for GM because it depends more on imports from Mexico and Canada to support US operations,” the report said. “In addition, a significant portion of GM’s high-margin trucks and SUVs are sourced from Mexico and Canada … Both manufacturers would need to absorb the cost of scaling back Mexican and Canadian production and moving some back to the US.”

Trump’s trade policy is already spurring companies to change their manufacturing plans.

Shares of Harley-Davidson plunged Monday after the iconic American motorcycle manufacturer said it will begin shifting some production overseas to offset the impact of retaliatory EU tariffs on certain U.S. goods.

As President Donald Trump escalates his threats to impose tariffs on cars imported to the United States, the new leader of the union’s General Motors Co. department is taking a hard line on the Detroit automaker’s decision to assemble in Mexico a new crossover carrying the revived Blazer nameplate.

Moments after GM revealed the 2019 Chevrolet Blazer at an event in Atlanta, United Auto Workers vice president Terry Dittes declared the news “disappointing to UAW families and communities across this country.”

“This is all happening while UAW-GM workers here in the U.S are laid off and unemployed,” Dittes said in the statement released Thursday night. “We in the UAW have always supported products manufactured and produced in the U.S. and will continue to do so as a part of the fabric of our union.”

GM says the decision to build the Blazer in Mexico was made at least two years ago, and that three plants were considered for Blazer production. Two of those plants were UAW shops in the U.S., but at the time the “future forecasts” saw those plants already at full capacity, a company spokesman said. The automaker declined to identify the plants in the U.S. it was considering for Blazer production.

Spokespeople for the Detroit automaker said the union likely knew of the production plans for the Blazer ahead of the Thursday announcement, but new leadership may not have been briefed.

Dittes took over the union’s GM department from Cindy Estrada after the UAW Constitutional Convention earlier this month. Both Dittes and Estrada were elected as part of new president Gary Jones’s ticket at the convention, and Estrada was reassigned to the Fiat Chrysler Automobiles NV department.

The elections come about a year before the Detroit Three and the UAW return to the negotiating table to draft new collective bargaining agreements in the fall of 2019.

Trump has taken an increasing harder line on punishing companies for manufacturing overseas. He has pushed for negotiating the terms of the North American Free Trade Agreement, declared tariffs on foreign steel and aluminum, and threatened punitive tariffs on vehicles from other countries, including Mexico and Canada.

On Friday morning, trade with Europe drew the ire of the president, who said in a tweet he wants a 20 percent tariff on all cars manufactured in Europe unless “Tariffs and Barriers are not soon broken down and removed.”

Trump’s tweet came hours after the European Union responded to barriers to imported steel and aluminum with tariffs on about $3.3 billion of American products. Those tariffs cover about 200 categories and target American-identified products including Harley-Davidson motorcycles, Levi Strauss jeans and bourbon.

Imposing tariffs on Europe would widen the president’s ongoing trade skirmishes. He has promised to impose 25 percent tariffs on $34 billion in Chinese goods beginning on July 6, a move that China has promised to counter — including a 25 percent tariff on U.S.-made cars.

MEXICO CITY (AP) — Mexico’s central bank has decided to raise its key interbank interest rate to 7.75 percent from 7.5 percent.

The bank cited uncertainty around negotiations on the North American Free Trade Agreement and Mexico’s upcoming July 1 elections.

The peso closed slightly stronger Thursday before the announcement, at 20.25 to $1. However, the peso has lost about 9 percent in value against the dollar over the last two months.

The Bank of Mexico said inflation decreased slightly in May to an annual rate of 4.51 percent. It was 4.55 percent in April.

Mexico’s top trade official is traveling to Japan this week as the Latin American nation seeks to diversify exports and investment amid an impasse in Nafta talks.

Economy Minister Ildefonso Guajardo said he still sees a high chance of a deal to update the North American Free Trade Agreement, but that the U.S., Canada and Mexico will need to show flexibility. The three sides will strongly engage next month, Guajardo was quoted by Reuters as saying on Monday in Tokyo, where he will meet Japanese officials and business leaders.

Nafta talks are on the back burner ahead of Mexico’s election on July 1, according to a person familiar with their timing, who asked not to be named citing private conversations. Uncertainty about the future of the trade deal increased this weekend after President Donald Trump clashed with Canadian Prime Minister Justin Trudeau just after a Group of Seven meeting ended in Canada.

Japan Ties

Guajardo will meet with Japan’s foreign minister as well as the minister of trade and commerce, his press office said in an emailed statement.

The world’s third-largest economy is the biggest market in the trade pact that succeeded the Trans-Pacific Partnership, which the U.S. abandoned a few days after Trump took office last year. The new deal, known as Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP, was agreed on by 11 nations in March and approved by the Mexican Senate in April.

Deepening ties with Japan and the other nations in the Pacific deal is part of Mexico’s push to diversify exports. Currently, 72 percent of the nation’s $435 billion in goods sold abroad every year go to the U.S. The nation also reached a deal in April to update its almost two-decade-old free-trade agreement with the European Union and is working to make inroads to China, Brazil and Argentina.

Japanese automakers including Nissan Motor Co., Honda Motor Co. and Toyota Motor Corp. have plants across Mexico, and the nation has received more than $14 billion in foreign direct investment from Japan over the past two decades. That makes Japan the biggest Asian investor in Mexico, according to data from Mexico’s economy ministry. Still, Japan bought only 1.3 percent of Mexican exports in 2017, about half as much as China and trailing the U.S, Canada and the European Union, according to data from the International Monetary Fund.

President Trump appears prepared to unravel 70 years of pain­staking effort that the United States has led to build an inter­national system of trade based on mutually accepted rules and principles.

Ever since an agreement on trade emerged in 1947 from the ashes of World War II, presidents of both parties have pushed this system as a way to strengthen alliances and promote the expansion of democracy and prosperity in Europe and Asia.

But with Trump’s decision last week to enact aluminum and steel tariffs against U.S. allies in Europe and North America, he is subverting previously agreed-­upon trade pacts. The result is a brewing trade war with Canada, Mexico and Europe, which are expressing shock and bitter frustration while enacting tariffs of their own on a bevy of American products.

The measures announced last week went beyond Trump’s previous actions, such as pulling out of the Trans-Pacific Partnership, a recently forged trade agreement among 12 nations, and his efforts to renegotiate the North American Free Trade Agreement with Mexico and Canada.

Now, he has imposed restrictions on aluminum and steel imports in the name of national security, even though almost all trade and national security analysts agree that it strains credulity to say it is risky to source metals from allies with whom the United States routinely shares sensitive intelligence information.

Veterans of trade policy worry that tensions will further escalate, putting existing trade agreements in peril and the future of the World Trade Organization, the group that the United States helped establish in 1995 to adjudicate the rules of global trade, in doubt.

“Trump’s actions create a feeling of chaos and lawlessness. America is no longer abiding by basic due process and commitments made to other nations,” said Jennifer Hillman, a former commissioner at the U.S. International Trade Commission.

Trump administration officials say the reaction from the rest of the world has been overblown. They say they are still eager to negotiate and they are just trying to stop a flood of cheap Chinese steel on the world market that has harmed American jobs and industry. Commerce Secretary Wilbur Ross is heading a delegation in Beijing this weekend to “discuss rebalancing” trade relations between China and the United States.

Trump has argued that he’s trying to get other countries, especially China, to play by the rules, and the president’s advisers say trade agreements negotiated in the 1990s are past due for an update that better reflects the current realities of the global economy.

“When you’re almost 800 Billion Dollars a year down on Trade, you can’t lose a Trade War!” the president tweeted Saturday, referring to the U.S. trade deficit in goods. (The overall trade deficit, which includes services, was $566 billion last year.) “The U.S. has been ripped off by other countries for years on Trade, time to get smart!” the tweet continued.

“We are the ones trying to save the rules-based trading system,” a senior administration official, who spoke on the condition of anonymity because they were not authorized to speak publicly, said in an interview Saturday. “Europe and Canada are cheating. They are giving subsidies to some of their industries and putting U.S. companies at an unfair disadvantage.”

The sudden U.S. hostility toward existing trade agreements comes at a fragile time. While the world economy has been chugging along, multiple countries are recoiling from the trend toward economic integration that has been continuing for decades.

Britain is in the process of exiting the European Union. With newly elected populists in power, Italy is dancing close to leaving the euro currency zone. And a leading candidate to be Mexico’s next president, Andrés Manuel López Obrador, is also a trade skeptic and may take an even more confrontational approach with Trump than the current president, Enrique Peña Nieto.

“The door is open to the system unraveling,” said Douglas Irwin, an economics professor at Dartmouth and author of “Clashing over Commerce: A History of U.S. Trade Policy.”

One reason for worry about things spinning out of control, trade experts say, is Trump’s apparent belief that he can use threats to coax concessions out of allies. While South Korea, Brazil and Australia have been more acquiescent, most of the world’s major powers have rejected his demands.

For example, last week Canadian Prime Minister Justin Trudeau revealed that he had rebuffed a request by Vice President Pence to resolve NAFTA negotiations with an agreement to revisit the terms of the pact every five years. That shattered hopes of Trump securing victory any time soon on NAFTA, and led the president to declare on Friday that he is considering abandoning the agreement altogether.

In the case of steel and aluminum, U.S. allies have refused to agree to quotas limiting their metals exports, thus forcing Trump to enact tariffs. Trump is acting more aggressively in part because a stable of cautious advisers has fallen away in recent months, and he has been emboldened by hard-line trade skeptics who have cast aside warnings about the economic pandemonium that could result from his confrontational behavior.

As a result, the United Kingdom, France, Germany, Mexico, Canada, Turkey and Japan have either begun or announced plans to launch countermeasures. They are also forging ahead with their own trade agreements without the United States, a situation that could put American companies at a disadvantage for years to come.

Numerous U.S. firms — and entire industries — are worried they could be caught in the crossfire of this escalating economic spat. Actions taken to fortify the steel industry could backfire by hurting other sectors dependent on inexpensive raw materials — possibly causing more job losses than jobs saved, economists say. And prices of many American goods — from cars to beer cans — could rise.

The cost of steel and aluminum tariffs for the average American family will be $210, estimates Mark Zandi, chief economist at Moody’s Analytics.

“This is basically a welfare scheme. You are taxing everyone in America to help a small number of people in the steel industry,” said Bart Oosterveld, director of the global business and economics program at the Atlantic Council.

Not every economist agrees, however, that the effect of the tariffs will be substantial.

“I don’t see a big risk to the global trading system. It’s not going to blow up the system,” said Peter Morici, a former chief economist at the U.S. International Trade Commission. “Trump wanted to send the Europeans a message on trade to get more concessions.”

Indeed, Trump’s tariffs so far are on a relatively small scale, hitting about $41 billion worth of steel and aluminum imports. But he has threatened to go after European-made autos next.

The bigger issue is a political one: the aggressive imposition of tariffs on an unprecedentedly wide variety of U.S. allies, and the use of national security as the justification for doing it.

As a result, America’s longtime partners are starting to view Trump’s move as a sea change in U.S. policy. Trudeau called the action “totally unacceptable.”

Cecilia Malmström, the European Union’s trade commissioner, said, “I would not use the term ‘trade war’ because it has a psychological effect.” But she added: “The U.S. is playing a dangerous game here.”

“This will have an economic bite, and it will last a long time,” said Adam Posen, president of the Peterson Institute for International Economics. “It will be hard to establish trust in the U.S. again, and all the uncertainty will drive down investment and productivity.”

Under WTO rules, the national security tariff is supposed to be wielded only in times of war or when there is a direct threat to a country. Trump’s team is arguing that any nation should be able to determine on its own when its national security is at risk and impose tariffs when it wants, a major shift that opens the door to any country erecting trade barriers whenever it wants.

“To me, it’s unequivocal that these U.S. tariffs are a violation of America’s WTO obligations,” said Hillman, a Georgetown Law professor. “Under the WTO, the U.S. committed to not discriminating among members of the WTO, so the U.S. can’t charge a 10 percent tariff on Canada but not Argentina.”

Past presidents from both parties worked hard to get other nations to join the WTO and adhere to a system that barred the arbitrary use of tariffs. Now the United States is facing multiple challenges at the WTO for inappropriate conduct.

If the United States loses such cases, Trump might simply ignore the rulings or even pull out of the organization. His administration has already blocked new appointments to the WTO’s appellate body, creating a backlog of trade disputes.

Some economists say that Trump is correct that trade has had some downsides that policymakers should address. But his explosive approach is misguided, they say.

“It is possible to address the negative consequences of liberalizing trade without destroying the global trade system, which has brought so much prosperity to the world,” said Minouche Shafik, director of the London School of Economics and recently deputy governor of the Bank of England.