Most everyone knows about Trump’s proposed tariffs on Mexican goods by now. He plans to impose a 10% tariff on Mexican goods on June 10th if our neighbor doesn’t make changes to quell migration numbers coming into the United States, and he plans to impose and extra 5% every month for three months until said demands are met. What most people don’t know is that these tariffs will end up being the largest tax hike American consumers have seen in around three decades, thanks to an analysis by the Tax Foundation.
According to the Tax Foundation, the existing tariffs against Mexico would raise revenues by approximately $69 billion, which is about 0.32% of its gross domestic product. The five percent tariff would increase that percentage to bout 0.40. The last time we got this close to that number was in 1993, under taxes by President Bill Clinton.
As the Tax Foundation puts it, “The Tax Foundation model estimates that if the Trump administration imposes additional tariffs on automobiles and parts, additional tariffs on products from China, and tariffs on products from Mexico, GDP would fall by an additional 0.50 percent ($124.82 billion), resulting in 0.33 percent lower wages and 387,041 fewer full-time equivalent jobs.”
This all sounds well and bad already, but these estimated only refer to the initial tariffs Trump was planning to impose. It doesn’t even go into full detail regarding what will happen if all 25% of the tariffs are imposed. If the 25% tariffs happen, GDP will rise to 1.45%, something we haven’t seen since taxes in 1968.
With all of the estimates, one could think that maybe, just maybe, imposing these tariffs is a bad idea. After all, Mexico is one of our major trade partners. However, acting White House Chief of Staff Mick Mulvaney made perfectly sure on Sunday to inform the public that President Trump is quite serious about imposing these tariffs on Mexico if his demands aren’t met.
That being the case, negotiations between the two countries are more important than ever. The Mexican President is certain that a deal will be reached, but clearly Trump isn’t so sure of that outcome. It’s worth noting that massive tariffs on Mexican good doesn’t make them pay more; it makes American companies buying their imported goods pay more. It just makes American companies less likely to buy Mexican imported goods, and if they do, they’ll likely have to hike up prices in order to compensate for the difference.
In short, these tariffs would probably create more problems than they solve, and most people in both countries are hoping a peaceful and mutually beneficial solution can be reached. But until that happens all we can do is sit back and wait for talks and negotiations between the two Presidents to conclude, and for them to inform the countries they govern as to how the situation will proceed.