Tensions between Mexico and The United States are at an all time high.
President Donald Trump has threatened a 20% import tax on Mexican goods in order to make
Mexico pay for a border wall.
Some senators, even including Trump’s Republican counterparts like Lindsey Graham, have opposed
the idea of a tariff, considering the toll it would take on both American and Mexican
citizens.
For starters, Mexico is highly reliant on the United States as an importer of goods,
and not just agriculturally, as some believe.
In 2016, the three largest Mexican exports for the United States were electrical machinery
and equipment, nuclear reactors, and motor vehicles.
Together the US and Mexico make up more than half a trillion dollars a year in bilateral
trade and a restrictive tax could potentially cripple the Mexican economy.
But it would also cripple the US economy as well, at least in the short term, and make
things more complicated and more expensive in almost every area of an American consumer’s
life.
For example, let’s say that you drive down to the local supermarket to pick up a freshly
made bacon, lettuce, tomato, and avocado sandwich.
The car you’re driving to the store is potentially built with a large number of Mexican made
parts.
In 2016, about 35% of the Chevrolet Malibu was made with imported parts, and Mexico is
the top foreign supplier of car parts to the US.
This is despite Chevrolet being owned by General Motors, a classically American car company.
With a high tariff on these parts, the US will have to increase trade with countries
like China, which is already the US’s largest trade partner.
Or, if that proves too expensive, the US would have to set up the same manufacturing plants
in the US, which could increase the cost of American made cars.
And that sandwich you bought, it wouldn’t be as cheap, or possibly even available without
low-tax trade with Mexico.
Most avocados, for example, don’t come from the United States.
About two thirds of avocados are imported, and 90% of those come from Mexico.
It is unlikely that US producers would be able to match the output of Mexican farms,
at least not at first, as a newly planted avocado tree takes about four or five years
to bear fruit.
The bacon in the BLTA is another cause for concern.
Mexico imports 83% of America’s exported slaughter hogs, which are pigs bred specifically
for food.
Mexico can easily bump up their own tariff, or simply look elsewhere for meat, which would
force pig farmers in US to find a new importer for nearly all of their excess livestock.
As for the tomato, while it isn’t as big of a problem to grow them in the United States,
it may not be their price, but their quality that will suffer.
Many American tomato growers are located in Florida, the second largest producer in the
US.
Florida suffers from regular, heavy rains, which degrades the quality of tomatoes on
the vine as they ripen.
Meanwhile, Mexican tomatoes are grown in sunshine, on cheaper land, using cheaper labor.
And all of this is ignoring the ability to buy the Mexican-sourced sandwich to begin
with.
Supermarkets have enormous overhead, paying for staff, refrigeration, electricity, shipping,
and so on, which they are only able to sustain by selling cheap goods at a higher price.
A tax on Mexico will mean that prices will have to rise, and supermarkets may have to
find new sources.
Some of these stores may not even survive a price increase.
After President Trump threatened the tax, stock market shares of supermarkets dropped,
showing that investors may be less interested in the hassle that may come with Trump’s
tax.
And investment isn’t all one-sided.
Firstly, American businesses have invested billions in Mexico to facilitate a vast network
of trade.
Just in 2013, General Motors invested more than half a billion dollars in manufacturing
plants in Mexico.
Should Trump’s tax become law, it is possible that this plant will become unsustainable
without regular imports to the US.
And on the other hand, Mexican investments in the US have doubled in the past decade.
These foreign direct investments fuel more than 120,000 jobs, and contribute 16.6 billion
dollars to the US economy.
Any of the US President’s plans seem to end badly for Mexico’s economy, but will
also implicitly hurt the US economy, alongside American consumers, who have come to rely
on a mutually beneficial relationship with their neighbors.
President Donald Trump’s trade plans have also put the future of the North American
Free Trade agreement in doubt, which could further complicate trade between the US and
Mexico.
Mexico’s role in the US economy is often overlooked, but it is, without question, a
crucial part that the country will struggle to replace.
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