What If There Were U.S. Tariffs on Mexico?

Whether the U.S. President’s unconstitutional proposal to use tariffs to stop immigration from Mexico is just a ploy is unclear. What is certain is that it would have hurt the U.S. economy.

Supposedly from June 10, Trump intended to impose a 5% tax all imports from Mexico. That could have cost the U.S. economy USD41.5 billion a year and job losses of 400,000 a year. Exports make up over a third of Mexico’s GDP, and some 80% of its exports are in manufactured goods sent to the U.S. The U.S. Chamber of Commerce had estimated that the proposed tariff could have cost U.S. consumers USD17.3 billion a year and rising to USD87 billion if the tariffs were increased to 25% eventually.

Mexico accounted for 15% of total U.S. imports in the first quarter of 2019. This is higher than Canada and China.

The hardest hit states if the tariffs were implemented include: Arizona (40% of its total imports), Michigan (38%); Texas (35%) and New Mexico (31%). Imports (by U.S.) from Mexico are cars, oil, electronics, machinery and fruits. Mexico could hit back with tariffs “surgically” to maximise political pain or gain. For Mexico, a 5% tariff will result in a contraction of 1.8% of GDP, according to JP Morgan. Trump’s idea was to squeeze Mexico’s economy until it gives in to his demands. And they caved in!

The Federal Reserve Bank of New York estimates that a 25% tariff on Chinese imports adds an extra USD831 in annual costs for the average American household. So with the so-called new Mexican tariffs (to 25% eventually), American household may have had to fork-out an additional USD1,500 – USD1,700 per household. The U.S. voters would definitely have questioned his competency to be president. Surely, Trump could set new tariffs on Mexico to build his wall?

References:

1. Where Trump’s Mexican Tariffs will hit the hardest, Financial Times, June 4, 2019.

2. Trump’s 5% tariff on Mexico (www.google.com search)