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The financial markets took a tumble today after President Trump threatened to impose tariffs on all goods imported from Mexico. Trump wants the Mexican government to stop the flow of illegal immigrants from Central America into the U.S. He said he would impose a 5% tariff on June 10 and then steadily raise it if no progress is made.
Now, to talk about the economic impact of these latest tariffs, we turn to NPR's Jim Zarroli. And Jim, let's just start with how the markets reacted today.
JIM ZARROLI, BYLINE: Yeah. Well, the markets are worried because the economies of the United States and Mexico have become really intertwined as a result of NAFTA. Mexico is now the second-largest market for U.S. products after Canada. We sell a lot to them. They sell a lot to us.
Now, Trump already risked disrupting that relationship by renegotiating NAFTA. Last year, the U.S., Mexico and Canada were able to come up with a revised agreement. And it really looked like things were getting back to normal. And then yesterday, Trump disrupted everything all over again by imposing these new tariffs for reasons having nothing to do with trade, and the markets don't like it.
CORNISH: Can you give us an example of how these economies are intertwined?
ZARROLI: Yeah. The auto sector, for example - let's say you have a car that's made in Mexico and sold here. It has many thousands of parts. They may be made in Canada. These parts may be made in the U.S. or Mexico, maybe even a fourth country. And these parts go back and forth over the border multiple times before the car is finished.
So we have this elaborate supply chain for autos that's been built up. And if you start to slap tariffs - which are a kind of tax - on these parts every time they cross the border, it gets, you know, not only really complicated, but really expensive, especially if Mexico retaliates with tariffs of its own.
CORNISH: Does President Trump have the legal authority to impose these tariffs, or does Congress have to get involved?
ZARROLI: Yeah, I was wondering that, too. And I put the question to Matt Gold, who was a trade official in the Obama administration. And he said Trump probably does have the authority to do this. Congress has delegated to the president the power to impose certain temporary tariffs, but Gold says this is almost certainly a violation of international law.
MATT GOLD: We're definitely violating both the World Trade Organization agreements that we have with Mexico and the NAFTA agreement that we're having with Mexico in very, very major ways with very, very scary long-term potential impact.
ZARROLI: And Gold says the U.S. may have some legitimate issues about immigration, but tariffs aren't the way to deal with it. It's better to deal with it through some diplomatic channels, only, he says, Trump at this point just doesn't have that much credibility with the Mexican government.
GOLD: Any previous American president, Republican or Democrat, would have had a good enough relationship with the Mexican government to be able to solve this problem without such a dramatic and self-damaging measure.
CORNISH: Can we talk more about that relationship? How is Mexico reacting?
ZARROLI: Well, the response from Mexican President Lopez Obrador was pretty subdued. He said he would send a government official to Washington to discuss the matter. There has been a bit more pushback from other places. The Wall Street Journal says trade representative Robert Lighthizer is actually opposed to the new tariffs. He is worried that they will jeopardize passage of this revised NAFTA - this U.S.-Mexico-Canada agreement - which already faced a pretty uncertain future in Congress.
Also, Iowa Senator Chuck Grassley said today what Trump did was a misuse of the president's tariff authority. Iowa, of course, is a big agriculture state. And farmers there sell a lot of products to Mexico, so they will be heard, especially if Mexico decides to retaliate with tariffs of its own.
CORNISH: That's NPR's Jim Zarroli. Jim, thank you.
ZARROLI: You're welcome. Transcript provided by NPR, Copyright NPR.