(Disclaimer: I’m not
an economist, but I did stay at a Holiday Inn Express one time.)
I just read a tweet from the faux-president of the United
States that said this: “(Immigration) talks with Mexico will resume tomorrow
with the understanding that, if no agreement is reached, Tariffs at the 5%
level will begin on Monday, with monthly increases as per schedule. The higher
the Tariffs go, the higher the number of companies that will move back to the
USA!”
(He’s the one who
capitalized the word “Tariffs,” not me.)
By way of explanation, Trump has threatened to place escalating
tariffs up to 25% on products imported from Mexico unless that country stops
the flow of migrants into America from Mexico and Central America. He apparently
believes two things that are untrue:
(1) That he’s punishing Mexico by taxing its exports into
the U.S., when in reality, the added cost will be paid by American companies
and passed on to American consumers and (2) that it’s Mexico’s job to fix any flaws
in our immigration system as opposed to, say, the United States Congress or his
administration…but I digress.
Getting back to his tweet, let’s talk for a few minutes about
the reality of imposing import tariffs on products consumed by Americans in
America. Let’s say for the sake of discussion that you’re an executive with the
Ford Motor Company. You used to build all of your cars in Detroit, Michigan, or
somewhere else in the United States where labor costs were approximately $55-60
an hour and you had to negotiate with the United Auto Workers union every three
years or so to keep workers on the job.
One day, an enterprising employee stopped by your office
with an idea. This young man or woman suggested a way to cut costs and vastly improve
profits by making cars in Mexico instead of Detroit. It seems that labor in
Mexico costs about 1/5 of what it costs in Michigan, so you can get a car built
for, say, $12 an hour instead of $60—and you don’t have the UAW looking over
your shoulder and going on strike whenever it feels like its workers have been aggrieved.
“Great idea,” you think, so you promote the young employee
to Manager, Mexico Operations, and ship him or her off south of the border to run
your new automobile production companies in Hermosillo and Cuautitlan.
Fast forward to 2019 and the American president is angry
because Congress won’t give him $25 billion or more to build a “big, beautiful
wall” along the entire southern border after first promising his supporters
that Mexico would pay for such a barrier, so he throws a temper tantrum about
border security. He decides that threatening Mexico with a new tax will help
him get re-elected in 2020 because he can say he kept his promise to curb immigration,
even though no wall is being built. So in a few days, he plans to add 5% to the
cost of imported goods from Mexico and thinks that will convince American companies
to “move back to the USA!”
When this news reaches you, the CEO of Ford, your response
is probably something along the lines of, “What? Is he completely nuts?”
See, in your mind, it doesn’t make sense to up and move your
entire manufacturing operation back to Detroit and resume paying $60 an hour
for $12 labor instead of paying a 5% tax on Mexican imports and simply passing
that added cost directly on to your customers. So what if a $20,000 car will now
cost $21,000? If people want the car badly enough, they’ll still buy it even with
a 5% higher price tag, right? Ford will still save billions of dollars in labor
costs, will keep profits high and still won’t have the UAW to contend with…and
Mexicans will keep churning out cars for the U.S. market.
The only people who will believe this tariff was a good idea
will be (1) members of Congress who are afraid of Trump and want to be
re-elected so desperately they will pretend that the tariff makes sense, and (2) run-of-the-mill
Trump supporters who are too stupid to realize it’s costing them money at the store. Cars will cost
more. So will tech equipment, appliances, optical and medical equipment,
furniture, lighting, agricultural products such as vegetables, fruits and nuts
and some of our favorite beverages. Do you like avocados? How about Tequila?
Amaretto? Corona beer? Get ready to shell out a few more bucks for these things.
How do you like Trump now?
And oh, by the way, slapping tariffs on U.S. importers won’t
achieve its intended goal to stop migrants from fleeing poverty, organized crime,
gang violence and political upheaval prevalent in their native countries and attempting
to enter the United States in search of a better life. Considering where they are coming from, not coming here is not an option. In fact, if the new tax somehow
damages the Mexican economy by raising the price of its products, that might
even inspire more people to flee Mexico and attempt to come here for economic
opportunity.
As I said before, I’m not an economist, but I do read a lot and I think I have a basic understanding of how import tariffs work. I have to
assume that people who are economists
have attempted to explain this concept to the man who occupies the White House,
and I know for a fact that some politicians from his own party have tried. The
fact that he’s pressing forward with this ridiculous trade policy in spite of
all reason to the contrary tells me he’s either too stupid or too stubborn to
understand.
Come to think of it, it’s possible that both of those things
could be true.
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