THE FOREIGN SERVICE JOURNAL | JUNE 2025 33 There is another dimension to the uncertainty that U.S. diplomats must navigate. Quite simply, what is the purpose of the tariffs? are competitive. And the U.S. offers a highly competitive and productive labor pool. It might appear at first glance that the pitch is now more compelling. After all, the application of tariffs would make the import of a good more expensive and investment in making it domestically more competitive. But the picture is not so clear. First, labor is expensive, so any labor-intensive manufacturing shift to the U.S. would need to factor in much higher costs for labor or automation to remain competitive. Whereas the U.S.-Mexico-Canada Agreement (USMCA) made a North American platform appealing, particularly to automotive companies that could source more labor-intensive parts from Mexico and do higher-value system integration in the U.S., the recent application of tariffs to Mexico and Canada make this trade agreement look less stable. And it is up for renegotiation in 2026. At any rate, USMCA is phasing in a stringent requirement for preferential tariff treatment—namely, that labor for a specific minimum percentage of a vehicle’s content is paid at least $16/ hour on average, which makes Mexico’s labor costs appear less competitive. But most important is the fact that industry is not sure which tariffs will stick. A manufacturer selling to U.S. customers must take into account two scenarios: The first is how much it costs to import a finished product (e.g., a car) from another country. The second is how much it will cost to import all the needed subcomponents—all the way up through steel, aluminum, and critical minerals like cobalt—to build the same car domestically. That cost now depends enormously on tariff levels country by country. U.S. diplomats will need to pitch the U.S., nonetheless. One prudent approach might be to emphasize the enduring attractions of investing in the U.S. rather than address tariffs on both finished goods and inputs, since they are highly subject to change in the coming years and should not therefore be dispositive in an investment road map. Stepping Up the Reporting Function In this environment, the most consequential thing U.S. diplomats can do to help further U.S. interests is step up the competence and quality of economic intelligence gathering for policymakers in Washington, D.C. At post, diplomats should be seeking detailed answers to questions such as the following: • Has anti-American sentiment picked up on social media or via foreign leaders’ speeches? • Is there a new level of antipathy toward U.S. requests for support on such things as sanctions against Russia or Iran, or important votes at the UN? • What are local and foreign businesses saying about the investment climate? • Are important sectors (e.g., a textile factory in an export zone, or a banana plantation) suddenly laying off workers because of a drop in orders from the U.S.? • Are there new investments popping up, especially by thirdparty countries like China that are hit hard by higher tariffs, which could be cover for changing the country of origin to shop for lower tariffs? • Is there a change in political stability, either because unemployment is rising or because opportunistic opponents are blaming the current leadership? • Is there a change in the foreign government’s treatment of U.S. investment in the country? Are audits or charges of corruption suddenly rising, or are there new delays in approval of permitting? • Are there new pressures for emigration? And if so, are they flows to the U.S. or EU? To be successful in information gathering and sharing to inform U.S. policymakers, I believe that two shortcomings need to be addressed. The first is individual competence at intelligence gathering. Department of Commerce diplomats have largely focused on small and medium-sized company export promotion—not a priority for the administration these days—and have not typically seen themselves as essential to transmitting intelligence back to D.C. They have unparalleled connections, however, to the U.S. and foreign business community. State Department officials, meanwhile, are well versed in reporting back to D.C. but have often stayed focused on the relatively insular world of bilateral, government-to-government engagement. In a world where trade and investment decisions are made by the private sector and are highly sensitive to tariff levels that have not been seen in a century, State Department diplomats will need to foster more external contacts. Additional technical skills can be taught through FSI—forensic auditing, for instance, to determine the ultimate ownership of a newly arrived steel
RkJQdWJsaXNoZXIy ODIyMDU=