Donald Trump ran for president with the promise of building a wall along the U.S.-Mexico border to quell the influx of illegal immigration into the country from our southern neighbor.
In order to get Mexico to pay for the wall, now-President Trump has proposed a 20% import tax on goods coming into the U.S. from Mexico. Bloomberg reporter Michael McKee appeared on Friday morning's Bloomberg Markets to discuss the ramifications of the tax.
Anchor Mark Barton asked McKee if it would be possible to "pry apart" the two economies without "huge" economic consequences.
"No, it would be very, very difficult to do," McKee responded. "The two countries are so intertwined, particularly in supply chains. And that is particularly true in the auto industry, one of the focuses of the president's complaints lately."
Auto parts and components are made and assembled in one or both countries and then put into cars in Mexico, which are then brought into the U.S., McKee explained. It would be difficult to untangle that relationship.
If such a tax went into effect, two areas that would be impacted most are machinery and electronics. Most TV sets sold in the U.S. are assembled from parts brought into Mexico, McKee continued.
"Agriculture would also be very severely affected; people are already talking about, in terms of this 20% tax, carve-outs for things like agriculture. Mexico produces things we don't get enough of here in the United States, like avocados."
The 20% tax would be implemented to fill the hole in the U.S. budget that cutting the corporate tax rate would leave, another Trump campaign promise.
"They want to cut [corporate taxes] from 35% to 20% [under the] House Republican plan. That would create a big budget deficit. They'd fill that with an import tax that brings in extra cash," McKee said.The cost of building a border wall has been debated, with the Trump administration saying it will cost $12 billion and others saying $15 billion to $20 billion. But McKee noted an MIT study saying the cost will be closer to $40 billion.