Saturday, January 28, 2017

Trump Wednesday declared a trade war with America's third-largest trading partner, Mexico. If you're in the automotive or automotive parts industry, buy a car, use electronics, buy gasoline, need to have a medical instrument used in your healthcare, or eat fresh fruit and vegetables -- count yourself among those fucked by this tax.

Remember: Mexican companies don't pay the tax. They pass it on to you, the consumer.

America exported goods worth $236 billion to Mexico and services worth $30.8 billion, and imported goods worth $295 billion and services worth $21.6 billion. 1.1 million Americans rely on exports to Mexico for their jobs. U.S.-owned affiliates have sales totaling $43.4 billion in Mexico, while Mexican-owned affiliates have sales in the U.S. of just $7.5 billion.

Top imports are vehicles ($74 billion), electrical machinery ($63 billion), machinery ($49 billion), petroleum ($14 billion, about 6.6 percent of all oil), optical and medical instruments ($12 billion), fresh vegetables ($4.8 billion), fresh fruit ($4.3 billion), wine and beer ($2.7 billion), and snack foods ($1.7 billion).

U.S. direct investment in Mexico is $107.8 billion, while Mexico has just $17.7 billion invested in the U.S.

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By unilaterally imposing a 20 percent import tax on Mexican goods and services, Trump would also be breaking the NAFTA treaty. What does this mean?

First, Mexico would no longer need to cooperate on migration. Currently, Mexico stops 90 percent of illegal immigrants at its border. It would not longer do so.

Second, Mexico would no longer need to cooperate on terrorism. By stopping most illegal immigrants at the border, and cooperating with the United States on stopping international terrorists from crossing into the U.S. via Mexico, Mexico is an integral part of the American security system. Mexico would no longer need to do that.

Third, Mexico would no longer need to cooperate on illegal narcotics, weapons, and cash. Currently, Mexico works very closely with the United States to stop all three. But Mexico would be under no compulsion to continue this cooperation.

Fourth, Mexico could appeal the imposition of the tariff to the World Trade Organization. The WTO rules would permit other nations, as well as Mexico to impose counter-tariffs, and could lead to fines for the United States.

Fifth, imposition of a tariff would eventually destroy the U.S. economy. As of last July, a dollar was worth about 15 pesos. With a 20 percent tariff, the Mexican peso would weaken even further -- perhaps as much as 40 to 50 pesos to the dollar. While this would cause capital flight from Mexico, it would also make Mexican goods 50 percent cheaper, allowing cheap Mexican goods to flood the U.S. market and preventing all those jobs Trump think he's saving. (This is classical economics, and is taught in every first-semester econ class.)

Finally: Trump risks harming Mexico to the point where the country's political stability buckles. Can you imagine a civil war, complete with millions of refugees, on our southern border? Or a country whose central government collapses, bringing anarchy and mass starvation and mass violence?

Thanks, Trump!

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