Donald Trump has insinuated that he’s going to make Mexico pay for his wall by charging a 20% import tax. This, folks, is a tariff, and as most conservatives and Federalists are aware, tariffs of this magnitude are invariably bad in the long term for Americans and many domestic businesses.
Let’s start with the humorous portion of this proposal: the opposition from the left. For those with a short memory, there have been other politicians in the recent past who have proposed this type of tariff system to raise funds for the national government, most notably Bernie Sanders. This is straight out of his playbook and is something that he would probably support if it weren’t framed as the payment method to close the borders. The fact that the left is protesting because it’s Trump who’s proposing it is indicative of the partisanship that’s rampant across the nation. If Trump pledged to raise taxes and fund Planned Parenthood completely, many leftists would complain simply because it would be their enemy making the pledge.
Now, onto the not-so-humorous parts. I’m not going to make the argument that tariffs of this sort end up having those costs transferred in whole or in part to American consumers. It’s obvious, so making the case is pointless. Those who don’t get it won’t get it. The arguments against this fact have been that Americans will now be more likely to choose Florida oranges over Mexican oranges, so “America First” wins! Unfortunately for those making this argument, that means that the wall wouldn’t get funded as a result. Any argument in favor of this proposal fails miserably when we dig a minuscule amount below the surface, so proponents are sticking with their top level arguments.
The not-so-obvious side-effect of such a tariff is that American companies that import from Mexico will also be affected. They will have to choose between getting their materials, products, and services from other sources or raising their prices to their consumers. According to the office of the U.S. Trade Representative, here is the breakdown of imports from Mexico:
- Mexico was the United States’ 3rd largest supplier of goods imports in 2015.
- U.S. goods imports from Mexico totaled $295 billion in 2015, up 0.2% ($667 million) from 2014, and up 73% from 2005. U.S. imports from Mexico are up 638% from 1993 (pre-NAFTA). U.S. imports from Mexico are up 638% from 1993 (pre-NAFTA).
- The top import categories (2-digit HS) in 2015 were: vehicles ($74 billion), electrical machinery ($63 billion), machinery ($49 billion), mineral fuels ($14 billion), and optical and medical instruments ($12 billion).
- U.S. imports of agricultural products from Mexico totaled $21 billion in 2015, our 2nd largest supplier of agricultural imports. Leading categories include: fresh vegetables ($4.8 billion), other fresh fruit ($4.3 billion), wine and beer ($2.7 billion), snack foods ($1.7 billion), and processed fruit & vegetables ($1.4 billion).
- U.S. imports of services from Mexico were an estimated $21.6 billion in 2015, 11.0% ($2.1 billion) more than 2014, and 50.0% greater than 2005 levels. It was up roughly 191% from 1993 (pre-NAFTA). Based on 2014, leading services imports from Mexico to the U.S. were in the travel, transportation, and technical and other services sectors.
Based upon this data and basic economics, there will be enough businesses reliant on Mexican imports to affect every American in some way. Whether it’s something basic like having to pay 10% more for their favorite guacamole or something more severe like increased prices for life-saving medical equipment, the bottom line is this: we’re not just going to be paying more for our favorite avocado. We’ll be paying more for other things as well.
There’s another potential side-effect. Since 1993, Mexico has been able to build strong industries that rely on exporting to America. While some industries will respond with higher prices, others would end up pricing themselves out if they were to do so. When prices can’t be raised, costs must be cut. That means fewer jobs. That means more desperate people needing some way to support their families. That means more attempts to cross the border. That means that if there’s a 30-foot wall, the only industry that will benefit would be the manufacturers of digging equipment or companies building 31-foot ladders.
This isn’t just the type of idea that runs contrary to traditional Republican beliefs. It’s an idea that will hurt Americans. Hopefully, Paul Ryan, Mike Lee, or someone with economic savvy can talk Trump into finding a better way to make Mexico pay for the wall. Otherwise, the end result may be worse than if we simply paid for the wall ourselves.