Donald Trump’s promise to build a border wall at Mexico’s expense helped make his candidacy famous. But only this week did he give a clear hint of just how he plans to make Mexico’s government pay for it.
“They will pay in one of three or four different ways,” he told CNN’s Wolf Blitzer, “including we’ll charge them a tariff … We’ll start taxing their goods coming into this country, and they’re going to pay.”
This sounds good to some voters, but not the kind familiar with how trade and tariffs work. Trump spoke with the tacit assumption that Mexico is the only beneficiary of its trade relationship with America, based on a sadly common misunderstanding of trade deficits. “Mexico,” as Trump put it, “is making a fortune off of the United States.”
But in reality, Americans have benefited immensely from this relationship as well, with our exports to Mexico quintupling in the time since NAFTA was signed.
As a result, Trump’s threatened tariff war against Mexico is akin to a madman’s threat to douse his roommate’s apartment with gasoline and burn it to the ground.
American companies have exported more than $1 trillion in goods to Mexico in the past five years. Trump’s proposed punitive tariff on Mexican goods, for all of its populist appeal, would be far more costly to Americans than a border wall. And that doesn’t count the additional costs it would impose on American consumers, who would have to pay at least a bit more for everyday goods after Mexican products are taxed out of price competition. Mexico might have more to lose, but the cost to Americans is great enough that Trump’s stance is either bluff or foolhardiness.
Even if Trump is not a stickler about these things, his threat also doesn’t account for the diplomatic costs of treating a neighbor shabbily. The Mexican government cooperates with Washington in a number of ways, for example with its recent unprecedented crackdown on illegal immigration from its own southern neighbors, which has taken some pressure off our southern border. Cooperation could evaporate if a hostile U.S. president were to throw his weight around as Trump suggests.
Trump claims to support free trade, but again and again he takes positions that demonstrate a lack of sincerity about it. In an already difficult economic period, he seems determined to return to a Smoot-Hawley Depression-era economic policy that would only make things worse. His reflexive opposition to the Trans-Pacific Partnership is an obvious example of this.
More recently, in an interview with The New York Times, Trump proposed a 45 percent tariff on Chinese goods. Such proposals are easy to sell to uninformed voters, who might believe that it instantly brings about thousands of high-paying jobs for Americans to build iPads and iPods. In reality, such products would simply be built somewhere else similar to China in terms of workforce skill, labor costs and availability of materials. Otherwise, a wide variety of products would become too expensive for lower income American shoppers to buy.
Free trade is good for our economy and for foreign economies too. It is the very rare issue on which economists are nearly unanimous. As we have explained previously in this space, it expands the pool of economic actors and capital, providing an optimal division of labor that increases productivity and offers more opportunities for specialization that lead to innovation.
Labor protectionism, on the other hand, is a losing proposition for the very people it is intended to help. Throughout history, nations that have practiced “self-sufficiency” ideologies have seen their cost of living rise and their standard of living fall or stagnate, an extreme case being North Korea.
Trump understands that many of his supporters blame trade for America’s decline. It is unfortunately a common position, but it is not the one that will make America great again.
