An American economy and shopper already bracing for an escalation in the U. S. trade war with China was hit by an equally damaging blow…
An American economy and shopper already bracing for an escalation in the U. S. trade war with China was hit by an equally damaging blow this week when President Trump unexpectedly ratcheted up his battle with Mexico.
From produce to cars, a wide variety of Mexican goods could become more expensive if Trump follows through on his threat to hit Mexican imports with tariffs that soon could climb to 25%. Trump wants to pressure Mexico into doing more to halt the flow of Central American migrants to the U. S. via the Mexican border.
The tariffs, set to begin June 10, would gradually climb to 25% on October 1 if Mexico doesn’t take steps “to dramatically reduce or eliminate” the number of migrants, Trump said on Thursday. Such a strategy would hurt American shoppers, the economy and stocks, experts say, just as U. S. growth is slowing and the threat of more tariffs on Chinese imports looms larger, experts say.
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USA Today economics reporter Paul Davidson breaks down the potential impact.
Mexico is the second-largest exporter to the U. S. behind China, shipping $346.5 billion in goods to the country in 2018, up 10.3% from 2017. Top imports are vehicles, machinery, TVs, furniture, appliances and agricultural products such as avocados and other vegetables, and beer and wine.
The International Emergency Economic Powers act of 1977 does give the president the authority to impose tariffs in a national emergency. Trump has said he regards the influx of migrants through Mexico as such a crisis, using it to justify a shutdown of the Mexican border earlier this year. But Fred Bergsten, co-founding president of the Peterson Institute for International Economics, says that claim is dubious and almost certainly would be challenged in court. Even if the border crossings represent an emergency, it’s highly questionable that Mexico could stop them, he says. A federal judge could order the tariffs removed while the case is hashed out in court, Bergsten says.
A 5% tariff would likely be absorbed by retailers and manufacturers. But much of a 25% tariff likely would be passed on to shoppers, Bergsten figures, increasing costs by up $86 billion across the economy. The Trade Partnership, a research group, thinks the overall total of tariffs will be less simply because U. S. retailers and manufacturers will buy less product from Mexico because of the duties.
While a 5% tariff could have no effect, prices could go up by several thousand dollars per model in the worst case scenario — permanent 25% tariffs, says Jeff Schuster, president of global vehicle forecasting at LMC Automotive.
For example, a $30,000 vehicle imported from Mexico would suddenly be hit with $7,500 in duties. How much automakers pass on to car buyers depends on how long the tariffs last, he says.
Key models imported from Mexico to the U. S. include, for example, the second- and third-most popular models in America: Fiat Chrysler’s Ram pickup and GM’s Chevrolet Silverado pickup.
