Trump is deploying a tactic from 'The Art of the Deal' in his trade threats against Mexico

President Trump employed a tactic from “The Art of the Deal” in announcing tariffs on Mexico.

Trump's book highlights the importance of having leverage in any negotiation.

Tariffs are seen as a critical threat to Mexico's economy, which is heavily reliant on trade with the US.

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Trump's sudden announcement of tariffs on Mexico takes a page from the President's own book, “The Art of the Deal”. In the book, Trump highlights the importance of having leverage in any negotiation.

“The best thing you can do is deal from strength, and leverage is the biggest strength you can have. Leverage is having something the other guy wants. Or better yet, needs. Or best of all, simply can't do without,” Trump wrote.

Tariffs represent a critical threat to Mexico given the country's heavy dependence on trade with the US. Mexican exports to the US totaled $346 billion in 2018, representing over 30% of the country's gross domestic product.

“Mexico, given its high dependence on trade with the US, cannot afford to risk high tariffs causing substantial loss to competitiveness and the economy,” writes SocGen research analyst Dev Ahish.

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Trump delivered the news in the form of a tweet, saying tariffs would be in place “until such time as illegal migrants coming through Mexico, and into our Country, STOP.” The migrants have typically been people fleeing violence in Central America, with these migrants passing through Mexico to reach the US.

Ahish sees few options for Mexico other than agreeing to a deal with the US, which may not back down given the importance of the immigration issue to Trump's base. Immigration was amongst the most critical issues of the Republican presidential primary, with voters favoring Trump's hardline positions.

“The Obrador government will negotiate with the leverage it has in terms of trade relations with the US and business leaders' interest in continuity. Nevertheless, in all probability, Mexico would have to offer concrete assurance to the Trump government if the US stands firm.”

Ahish notes that it will take time to put a solution in place. However, the pressure on the peso, which dropped markedly as the tariffs were announced, as well as the tariffs potentially rising to 25% by October, will place intense pressure on Mexico to broker a solution.