Commentary:
In my last column, I wrote about tariffs and how and why they are applied on products. President-elect Donald Trump made import tariffs a cornerstone of his campaign. Governments around the world have used import tariffs to protect local businesses from competition, to raise revenues for government coffers, and to punish countries with which they are at odds. Since 2018, the U.S. and China have been in a trade war, which was initiated during Trump’s first term. In this trade war, both countries have imposed import tariffs on a myriad of each other’s products.
I have dealt with U.S. companies that import Chinese goods and components and are paying a 25-percent tariff, which hurts their bottom line in terms of being competitive in the global market. The U.S. and China have a nearly $600 billion trade relationship, so the imposition of tariffs has major effects. Trump has now announced that on day one of his presidency, he will raise tariffs on Chinese products by additional 10 percent to punish that country from failing to stop fentanyl shipments to the U.S. Businesses that can’t immediately pivot from buying Chinese products would simply pass the costs on to U.S. consumers, as is already being done with many Chinese imports.
The more economically vulnerable consumers will suffer the most. Struggling families shopping at discount stores such Dollar General and Walmart, which carry a multitude of Chinese products, will see prices go up. The tariffs will act as a tax on consumers. I have seen estimates on families earning under $50,000 paying an extra $2,500 to $4,500 per year in extra costs due to the tariffs.
As for Mexico and Canada, our U.S.-Mexico-Canada-Agreement (USMCA) partners,
Trump has stated that he will impose 25 percent tariffs on both of them on day one for their failure to crack down on drugs and immigrants entering the U.S. This is in line with his campaign rhetoric, but to a broader extent, not just focusing on tariffs on Mexican auto imports. During an interview with Fox News, he said that would impose a 500-percent tariffs on these autos, to the point that “I’ll put a number where they can’t sell one car.” During a speech to the Detroit Economic Club, he said that he could impose up to 1000-percent tariffs on these autos. The U.S. and Mexican auto industries are symbiotic, with each nation contributing to the production of North American-built autos. U.S. car manufacturers have been operating in Mexico for years, which allows them to be globally competitive. Imposing tariffs on Mexican auto imports will hurt American car manufacturers. Tariffs on all Mexican products will hurt all economic sectors.
Imposing tariffs on Mexico and Canada in any manner would most likely be a violation of the USMCA, which Trump himself negotiated to replace the North American Free Trade Agreement (NAFTA) during his first term. The USMCA aims to build a North American trade bloc through tariff reduction and cooperation. Imposing tariffs on Mexico and Canada would also make them less attractive for foreign direct investment and production.
This would undoubtedly cause Mexicans desperate for work and better economic opportunities to migrate to the U.S., which would defeat the purpose of the tariffs.
Migration to the U.S. has slowed to a trickle compared to the numbers seen during the worst of the migration crisis. President Biden’s decree not allowing migrants who did not enter the U.S. through legal channels to apply for amnesty, coupled with Mexico’s interception of northbound migrants at its southern border, have stemmed the flow.
During his first term when Trump threatened to pull the U.S. out of NAFTA, strong pushback from the U.S. business community made him cool his stance. Too much was at stake to damage the U.S.-Mexico-Canada trade relationship. The U.S. has a nearly $800 billion annual trade relationship with Mexico, while it trades $774 billion with Canada. This scenario might play out again if tariffs threaten companies’ revenues, competitive stances, and employees. It also will be interesting to see how lawmakers whose districts rely heavily on trade with Mexico will react.
It is easy to think that other countries will increase their exports to the U.S. to make up for the trade lost on the newly announced tariffs. However, this cannot be done overnight. Furthermore, during the campaign, Trump talked about imposing a universal tariff on all imports coming into the U.S. Going down this path would mire the U.S. in a trade war with the world.
It’s yet to be seen how much of the campaign rhetoric regarding tariffs will be translated into actual policy or whether Trump’s latest tariff announcement is simply a move to gain leverage in future negotiations. The direction of U.S. economic interaction with the rest of the world will be at stake, along with consumers’ pocketbooks.
Jerry Pacheco is President of the Border Industrial Association. Jerry Pacheco's opinions are his own and do not necessarily reflect the views of KRWG Public Media or NMSU.