White House spokesman Sean Spicer told reporters travelling with the president on Thursday that President Donald Trump has decided to pay for his proposed border wall with Mexico by levying a 20 percent tax on all imports from that country.
However, there is considerable confusion over what exactly the White House is proposing. Spicer said that the tariff would be enacted as part of broader tax reform. And the Republicans in the House of Representatives are considering a proposal that would create a border-adjusted tax of 20 percent on imports. But the House proposal would apply to all imports, while Spicer appeared to be talking only about Mexican goods.
Trade policy isn’t normally announced in the press gaggle on Air Force One, so the details of what’s really going on are difficult to determine at the moment. What’s clear though, is that slapping a 20 percent tariff on Mexican imports would raise prices on an awful lot of things that U.S. consumers buy every day.
According to the Office of the United States Trade Representative, Mexico is the United States’ third-largest trading partner, with $587 billion in goods and services crossing the border in 2015. That breaks down to $267 billion in American goods and services exported to Mexico and $316 billion flowing the other way.
If the sellers of those $316 billion worth of products purchased by Americans are hit with a 20 percent increase in costs, they are going to do their best to pass that increased expense on to American consumers. And it will hit American checkbooks in multiple ways.
According to Commerce Department data, the U.S. imports from Mexico in 2015 were:
* $74 billion in vehicles,
* $63 billion in electrical machinery,
* $49 billion in other machinery,
* $14 billion in fuel and
* $12 billion in medical instruments.
Mexico is also one of the largest exporters of agricultural products to the U.S., sending $21 billion worth of fruits, vegetables, beer, snack food and more across the border in 2015. Like your strawberries in February? Get ready to pay more for them.
And there is every reason to expect that Mexico would hit back if Trump imposed an across-the-board tax on Mexican imports. U.S. exports to Mexico support an estimated 1.1 million jobs in this country, and American exporters would likely find their goods were suddenly less affordable for their Mexican customers.
Mexico is the second largest importer of U.S.-manufactured goods, and according to the Commerce Department, the same kinds of things that cross the border going north also cross it going south. According to the U.S. Trade Representative, “The top export categories ... in 2015 were: machinery ($42 billion), electrical machinery ($41 billion), vehicles ($22 billion), mineral fuels ($19 billion), and plastics ($17 billion).”
Mexico is the third-largest buyer of U.S. agricultural products as well, with $18 billion in produce and meat shipped south in 2015.
Again, it is not completely clear how serious the administration is about applying an import tax specifically to Mexico. But a couple of things are clear.
If Trump intends to effectively tax Mexican goods in order to raise money for the wall, it won’t be Mexico paying for it, as he long promised, it will be American consumers.
And if Mexico retaliates against U.S. exporters, costing them sales and perhaps jobs, the American people will have paid for it twice.