GOP divided over how to stop Trump’s trade wars

Republican lawmakers on Capitol Hill desperately want to convince President Trump to back off his plan to impose tariffs on Mexican imports but disagree over the best strategy moving forward.

Some, such as Sen. John Cornyn (R-Texas), an adviser to Senate Majority Leader Mitch McConnell’s (R-Ky.) leadership team, want to persuade the president to change course through private dialogue.

{mosads}Others, including Senate Finance Committee Chairman Chuck Grassley (Iowa) and Sens. Pat Toomey (Pa.) and Rob Portman (Ohio), are talking about passing legislation to curtail Trump’s tariff authority.

“We’ll be having some meetings shortly to talk about it,” Cornyn told reporters ahead of a leadership meeting as lawmakers were returning to Washington on Monday after a weeklong recess. “A lot of concerns [have been] expressed about the unintended consequences and so I’m sure we’ll be visiting with the administration about that,” he added.

Trump’s plan is to impose a 5 percent tariff on Mexican exports starting on June 10, and to raise those tariffs to a maximum of 25 percent in October unless Mexico cracks down on illegal migration across the southern border.

He is showing no signs of relenting, arguing Mexico should immediately stop the flow of Central American immigrants in a tweet sent Monday as the president visited Great Britain and prepared for a formal state dinner with the queen.

“As a sign of good faith, Mexico should immediately stop the flow of people and drugs through their country and to our Southern Border. They can do it if they want!” the tweet said.

One possibility floated late Monday would be for Congress to vote on a joint resolution disapproving of Trump’s declaration of a national emergency at the southern border that could strip him of authority to levy new tariffs on Mexico.

But the president vetoed such a resolution in March and the Democratic-controlled House failed to muster enough votes to override him. Only 14 Republicans voted with Democrats to overturn the veto.

Trade has often put Trump at opposite ends from GOP senators, and they have struggled to get him to relent.

Hefty tariffs on Chinese imports and products from the European Union led to retaliation against U.S. exports and were particularly damaging to farm states.

But the tariffs on Mexico’s exports have the potential to be worse, not only because they add to an uncertain global economy already wracked by the trade war with China, but because North American supply chains for automobiles and other products depend on the free flow of goods back and forth across the southern border.

Two major investment banks, Morgan Stanley and JPMorgan Chase, warned Monday that a recession is now more likely before the 2020 presidential election, while one member of the Federal Reserve floated the possibility that interest rates might have to be cut this year because of a slowing economy.

“If the president follows through on his threats, all of his threats, then recession is likely,” said Mark Zandi, chief economist at Moody’s Analytics. “The direct hit to the economy from the tariff hikes are significant. If he follows through on all his threats, it will be like a $200 billion tax increase, which is roughly the size of the tax cut last year.”

GOP lawmakers thought they were making progress with Trump on trade after he agreed to do away with tariffs on steel and aluminum imports from Canada and Mexico to improve the chances of implementing a new trade deal with the two countries known as the USMCA.

“I viewed that as a very positive thing, but I think [the latest tariff threat] calls into question our ability to pass the USMCA, much less get it passed by Canada [and] Mexico,” Cornyn said.

Grassley, who said he didn’t get a heads-up on the Mexico tariffs, wants to bring a bill to the floor to curtail Trump’s tariff authority.

“Leave no doubt. I intended to get a compromise between Toomey and Portman and also get enough Democrats so it’s bipartisan to move a bill,” Grassley said, referring to competing proposals by Toomey and Portman to rein in Trump’s tariff authority.

{mossecondads}Toomey’s bill would require Trump to get approval from Congress to impose tariffs under Section 232 of the 1962 Trade Expansion Act. It would give power to the secretary of Defense instead of the Commerce Department to investigate whether tariffs are justified by national security concerns.

Portman’s bill, which he crafted in consultation with senior White House officials, would give Congress more oversight over tariffs but wouldn’t require Trump to secure approval from lawmakers. Instead, it would allow Congress to disapprove of new tariffs under Section 232 by passing a joint resolution.

Passing legislation would send a strong signal to the president but it likely would not block his latest tariff threat against Mexico, which he is justifying by pointing to authority through the International Emergency Economic Powers Act (IEEPA).

Portman, a U.S. trade representative under former President George W. Bush, on Monday said there are still questions about how exactly the 1977 law could be used to authorize tariffs.

IEEPA hasn’t been used before to impose tariffs, according to Lawfare, a legal blog. Instead, it has been used to implement economic sanctions and regulate sensitive U.S. exports.

Cornyn said passing a bill would likely not have much of an effect because Trump could veto it, and it would be difficult for Congress to override his veto.

“Legislation, I think, obviously requires the president’s signature. I think the better course is to have some discussions in private about what the range of unintended consequences will be, so that’s what I would prefer to do,” he said.

U.S. banks are warning the risk of a recession in the next year would rise significantly if Trump places tariffs on an additional $300 billion of Chinese imports and raises tariffs on Mexican imports to 25 percent, as he has threatened.

Morgan Stanley warned a global recession could start in the next nine months while JPMorgan increased the possibility of a recession in the second half of 2019 from 25 percent to 40 percent.

Zandi, of Moody’s Analytics, warned additional tariffs will shake financial markets, and undermine business sentiment more broadly.

“He may underestimate the impact of all of this on the economy. I think his advisers are missing a lot of what’s going to happen and so he’s probably getting bad advice,” he added.

Zandi warned that tariffs on Mexico likely pose a bigger threat to the U.S. economy because Mexico exports more to American consumers than China does, and the U.S. and Mexican supply chains are more closely integrated.

Cornyn said slapping a 25 percent tariff on Mexican goods would have a devastating impact on his state’s economy.

“I don’t even want to think about it,” he said, expressing hope that Trump might change his mind.

–This report was updated on June 4 at 5:53 a.m.