Trump might make pizza night more expensive.
Last week President Donald Trump began to move forward on his plan to build a wall across the U.S./Mexico border.
This was a major part of his campaign for the presidency despite widespread agreement that a 1,300-mile-long wall will do nothing to secure the border against illegal immigration. The wall will cost anywhere from $10 billion to $25 billion in materials and construction alone, plus the as-yet uncertain costs to buy all of the land necessary for construction.
That comes to more than $120 per U.S. household, but the direct costs are just the beginning. To try and recoup this money, Trump has floated the idea of imposing a 20% tariff on Mexican imports.
This would be an unambiguously bad deal for American consumers and workers alike. Here are just a few reasons why:
Fruits and vegetables will get more expensive.
The Mexican government wouldn't pay a penny of any potential tariff. Importers would absorb it as a cost of business and, like any other systemic cost, would pass it along to the customer in the form of higher prices.
And a lot of prices would go up in the wake of Trump's tariff.
America imports over $316 billion worth of goods and services from Mexico every year, making it our country's third biggest trading partner. Mexico doesn't specialize in any particular export to the United States. Almost every kind of product from beer and wine to medical equipment crosses the border.
One category does deserve a particular mention though: fresh fruits and vegetables. America imports a lot of its produce, and Mexico is its top producer of agricultural imports. They would all jump in price.
Most notably, America imports nearly 80% of its avocados from Mexican farms. The country also supplies more than half of all U.S. tomatoes and a lot of the onions and peppers at the grocery store too. It's not just salsa that will feel the pinch. Pasta, pizza, hamburger, chili and more will start to get a lot more expensive too.
Most products made in America will get a little more expensive.
In the wake of NAFTA, Mexico and the United States have shared an unusual global relationship: an expensive, developed nation sharing a major land border with a developing, inexpensive one.
The result has been a vast integration of supply chains as U.S. and Mexican companies increasingly specialize in their strengths. On the American side of the border, that generally means the jobs that require skill and capital. On the Mexican side, that generally means labor.
Companies today have plants on both sides of the border, with U.S. employees and Mexican employees working together (even if they may not know it). Products are shipped back and forth at various stages of development, even the ones stamped "made in USA."
"A 20% tariff would have significant effects on American consumers," said Edward Alden, a senior fellow with the Council on Foreign Relations. "There may be other sources for some of these products, but the cost to Americans would certainly rise."
"The bigger point is how closely integrated the supply chains are now in North America," he added. "This is exactly what NAFTA was intended to do. The U.S. sells a lot of components to Mexico which are then assembled in Mexico for final products that are sold in the United States. You start disrupting those supply chains, and it's going to cost companies billions of dollars."
Jobs will drop in surprising sectors like trucking, farming and manufacturing.
A major tariff from the United States would almost certainly be met in kind by trade restrictions from Mexico, and that would mean job losses across plenty of industries.
Notable results would include farmers, truckers and factory workers.
"If you've ever gone to the U.S./Mexico border, you'll just see trucks lined up on both sides. There's a whole industry to get products back and forth across the border," said Jason Marczak, director for the Latin America Economic Growth Initiative with The Atlantic Council. "We don't just trade with Mexico like we trade with other countries. We actually work together with Mexico to manufacture products."
A trade war between these countries would dry up that trucking industry, maybe to be replaced by shipping sectors from whatever other countries manufacturers relocate to.
As for the rest, Mexico is America's second largest customer, buying over $236 billion worth of goods per year. The three leading exports are machinery, electrical machinery and cars.
All of those factories across the Midwest? They sell a lot of finished products to Mexico.
Meanwhile for the farmers, Mexico is their third largest export market in the world. Chicken and dairy farmers in particular would feel the pinch, since Mexico buys one-quarter of all U.S. poultry exports and is the number one customer for U.S. cheese.
About five million will be jobs lost, and inequality will worsen.
"U.S./Mexican trade is fundamental to the underpinnings of the U.S. economy," Marczak said. "There are millions of Americans who probably don't even realize that their jobs depend on trade with Mexico."
"Five million Americans would be out of work without U.S./Mexican trade," he predicted.
Raising a major tariff on Mexican goods would function as a de facto sales tax on countless goods, raising prices just a little bit on a lot of things. This would suck demand out of the economy across the board, leeching dollars out of every consumer product.
Any major slowdown in demand generally comes with consequent job loss. It would also make inequality worse, as these price hikes would hurt low income people the worst. The goods most likely affected would sit on the retail shelf.
"When basic goods like that become more expensive," Marczak said, "it's somewhat of a regressive tax that affects the lower middle class more so than it does the middle and upper classes. We have been able to thrive as an economy partly because the consumer class in this country has so much more access to goods than they would have otherwise."
Vacations will get more expensive.
There's not a whole lot to say here. Mexico City is the world's 16th busiest airport and a major hub. A lot of Americans looking to see South America have to stop through there.
A trade war between America and Mexico would probably hit that too.
There's much to be said about the role of NAFTA and whether it needs changes. (Indeed, most economists agree that after two decades the trade deal at bare minimum needs to be updated.) However a flat tariff introduced by fiat would almost certainly spark a trade war, which would be difficult to quantify since a trade war with Mexico would touch almost every industry.
The result is that Trump's tariff would make most goods at least a little bit more expensive. Even the products that don't touch Mexico would likely creep up just a little bit as the entire consumer marketplace adjusts upwards to a new set of price points.
And there's no reason to believe that jobs would move back to the United States. Even if companies respond to the tariff by pulling jobs out of Mexico (a big if), most of the rest of the world is cheaper than America.
It would take a tariff against the entire planet, and a huge one, to offset the expense that comes with having a wealthy, successful economy.
And that's even before we talk about this ugly and cruel attempt to wall people out just for wanting a better life.