The Trump administration intends to slap a 5 percent tariff on every medium-sized car, avocado and other Mexican import beginning June 10, affecting nearly $1 billion worth of goods that crosses the border into the U.S. each day on average.
The president is using the policy as a cudgel to compel Mexico to do more to halt the flow of undocumented migrants to the U.S. and says he’ll increase the tariff up to 25 percent by October if things don’t improve.
As a scholar who studies trade policy, I have a hard time agreeing with the president’s strategy that tariffs can be used as a stick to pressure another country to do whatever he wants.
More than that, Americans will pay the price – as they have with Trump’s U.S.-China trade war.
Tariffs are a tax imposed on imports paid by consumers in the recipient country. They are typically used as a protectionist measure by governments to promote domestic goods in the face of global competition.
For instance, if a domestically made item costs less than a foreign made item due to tariffs, you would expect a consumer to choose the less expensive, domestic item.
This would make sense in an economy where consumers have actual choices about whether to buy a foreign or domestic product.
However, due to the evolving global economy, most consumer goods are made abroad or contain foreign parts. All U.S.-made cars, for example, contain foreign parts. Also, my research has shown it is not easy to understand how “foreign” a product is.
One good example is avocados. Mexico produces 11 for every 1 grown in California. So unless the demand significantly declines for avocado toasts and guacamole, Americans will simply have to pay more for avocados and their byproducts.
A 5 percent tariff on all imports from Mexico will drive up costs to American consumers and businesses by almost the entire amount, meaning using them to solve a very different border security issue will be painful.
It is also quite confusing to place tariffs against Mexico.
Just six months ago, the U.S., Canada and Mexico finished negotiating a massive trade deal to replace the often-reviled North American Free Trade Agreement. Although the deal has been signed by leaders of each country, it has not yet been ratified by the U.S. Congress.
President Donald Trump, who has frequently blasted NAFTA and trumpeted its replacement, now risks seeing his replacement agreement torpedoed. House Democrats were already on the fence about whether to ratify it and may use his tariff threats against Mexico over immigration as another reason to vote it down – or get an immigration deal more to their liking.
And Mexico is talking about retaliation against any tariffs Trump imposes, including rejecting the negotiated accord. Tearing up the deal could cause economic turmoil for the U.S., particularly as Mexico is the second-largest export market for U.S. goods.
All in all, academic research has shown economic sanctions, including tariffs, aren’t an effective way to conduct foreign policy.
Unfortunately, they seem to have become the Trump administration’s go-to strategy when it doesn’t get its way.
Christina Fattore is an associate professor of political science at West Virginia University. Her column was distributed by The Conversation, a news service featuring commentary from academic experts in various fields.