The thing with writing about President Donald Trump is that he will most likely change his mind before the story comes to print. Such is the case with Trump’s latest Mexico tariff proposal.
I have no doubt Trump floated the idea without much thought, maybe as part of a pending negotiation between the two countries. I also have no doubt this article might be dated before we go to print, but the mere fact Trump suggested the tariff needs to be addressed. Whatever the reason, it is an absolutely stupid idea.
Tariffs come in many forms and some are sound in their conception. One example of a tariff might be a fee applied to all ships that “dock” at a port. This type of tariff is common and is comparable to a parking fee you and I might be charged when we park downtown. However, a tariff can only be as high, and fair, as the market is willing to bear. None of you would park in downtown Portsmouth or Dover if the parking was $20 an hour, which would have an adverse effect on a city’s economy (fewer customers means fewer employees, which means fewer goods purchased, etc.). Likewise, a ship would not dock if the cost to do so was disproportionate to the goods or service. Economics 101 has many tenets, one being that the profit ratio has to be within a margin a customer feels is just, while at the same time the merchant knows they are being fairly compensated.
Then there are more punitive types of tariffs, the ones designed to punish, to reduce the flow of goods, that have an adverse effect on a country’s internal commerce, or to protect businesses in our country that also happen to offer the same goods. It is these types of tariffs that seldom benefit the entirety of a nation’s economy. The “Tariff of 1828” and “Smoot-Hawley Tariff Act” of the 1930s are two examples.
Although slightly different in conception, both had a negative effect on parts or all of our economy. The Tariff of 1828, which would become known as the Tariff of Abominations, only benefited the economy of the North, in particular New England. The Smoot-Hawley tariff had a devastating effect on our economy, not at first, but as other countries countered with their own tariffs, our economic woes worsened. The Smoot-Hawley tariff came when the U.S. economy was on the brink of total collapse, and served to aggravate the Great Depression.
Although Trump’s tariff probably would not be to the extremes of either of these two tariffs, there will be negative consequences. One only needs to follow the flow of agricultural goods between Mexico and the United States to understand the consequences.
The United States exports approximately $19 billion in agriculture to Mexico. Mexico is the third largest U.S. agricultural export market. Mexico exports approximately $18 billion worth of agricultural goods to the United States. The Trump Tariff would attach a 20 percent fee on all those goods coming to the United States. A tomato or avocado from Mexico would increase in price, compounded at every point of sale. Now, history tells us Mexico would almost certainly apply a similar tariff on our goods coming into their country. That is how a tariff war starts.
That U.S. farmer that exports pork to Mexico sees a reduction in orders because the cost is more than the market will bear. That pork farmer needs to adjust his model, which includes fewer workers, less need to transport goods, a reduction in grain purchases to feed his livestock and so on. A tariff of any percentage would have a devastating effect to our country, especially to an economy that only grew 1.6 percent over this past year (U.S. economic growth in 2016).
President Trump promised to build a wall between Mexico and the United States. Trump additionally promised Mexico would pay for that wall. I happen to believe in a physical barrier between Mexico and the United States. Mexico is a country in crisis with serious internal security issues. This border in particular is extremely vulnerable to the point that those wishing to do this country harm exploit the Mexico-U.S. border. However, a physical barrier can only be one part of an effective security strategy. In the end, it is the responsibility of the United States to provide for its own security needs.
Make no mistake; Americans will pay for this wall, directly or through increased cost due to a tariff war. This tariff will hurt the U.S. and Mexican economies. Hopefully, I am correct about Trump coming to his senses on this tariff. If not, Congress should not support this economic lunacy, and a more commonsense approach to funding our southern border security needs should be presented, discussed and supported. If not, everyday Americans will pay a steep price.