A Trade War with Mexico Comes with a Price
By Eric G Braun, Senior Writer, USRW
One week after assuming office, President Donald J Trump has fired the first salvo of rockets at our neighbor to the south, Mexico.
We all knew it was coming eventually. Mexico defiantly refuses to discuss the border wall and Trump's promise that Mexico will pay for the wall. Mexico President, Enrique Peña Nieto went as far as to call off a meeting with Trump, raising the stakes and prompting Trump to suggest a 20% tariff on imports coming from Mexico.
Trump has the upper hand in this battle, however, it won’t be without the United States taking a hit as well.
And that’s how our industry gets involved.
The figures are mind boggling, Mexico is our 3rd largest trading partner, and between us, we did a little over $583 billon in cross border commerce in 2015. Tampering with this is a move that would crush Mexico and hurt U.S. consumers. México’s inflation and unemployment numbers would be off the charts, a situation an already unpopular Nieto does not need. Nieto is in a no- win situation here. Trump won’t give him the stature and temperament that other world leaders would get, and Nieto comes across as un-equipped to go head to head with a guy like Trump.
Moody’s crystal ball suggests that a trade war would slightly reduce our country's economic growth and cost about 300,000 jobs a year.
The Pew Research Center reported in November that the number of unauthorized Mexican immigrants in the U.S. fell from 6.95 million in 2007, to 5.85 to million in 2014. An argument that Trump’s critics like to make, however, is 5 million people better than 6 million?
Yes, in theory, but its impact on the U.S. would be about as practical as saying that "you’re a little pregnant.”
Trump also should consider the impact on Mexico, as hard as he may want to hit them, he must use reasonable restraint. Mexico is our ally; a border country, and history has taught us that its problems quickly become our problems.
An economic crisis will send more people across the border and strengthens the drug cartels.
However, the 20% tariff would pay off overall, as Trump's Press Secretary Sean Spicer recently noted, “When you look at the plan that’s taking shape now, using comprehensive tax reform to tax imports from countries that we have a trade deficit from, like Mexico,” said Spicer.
“If you tax that $50 billion at 20% of imports – which is by the way a practice that 160 other countries do – right now our country’s policy is to tax exports and let imports flow freely in, which is ridiculous. By doing it that way we can do $10 billion a year and easily pay for the wall just through that mechanism alone. That’s really going to provide the funding,” he said.
Perhaps South Carolina's, Senator Lindsey Graham, a sometime arch nemesis of Trump, said it best: “Simply put, any policy proposal which drives up costs of Corona, tequila, or margaritas is a big-time bad idea. Mucho Sad.”
Unfortunately for Nieto, he is the first victim of a Trump Administration, perhaps by design. Trump knows he can’t lose his first battle, if he can’t handle Mexico, how would he fare with China, Russia, North Korea, Iran, and other trading partners? Trump will not lose on his first challenge from a foreign leader, especially one that can’t militarily threaten the United States.
Trump is the Tom-Cat and Nieto is the mouse who wasn’t fast enough and is at Trump’s mercy. This thing will never reach a trade war, but the jitters on Wall Street don’t act on fact. It’s too late when they do that, and they will bet on a hunch, and with Trump as President, that could be quite a roll of the dice.
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