In a U.S.-Mexican Trade War, No One Wins

In the first week of his presidency, we have seen Donald Trump move forward on some of his campaign promises through withdrawal from the TransPacific Partnership (TPP) and ordering the construction of the wall along the U.S.-Mexico border. These actions seek to posture his administration as tough on the international stage and putting America’s needs first. However, what happens when other nations refuse to bend to Trump’s will, as Mexico refuses to finance the wall? Sean Spicer, Trump’s Press Secretary, stated that the administration was considering a 20% tax on Mexican imports in order to finance the wall.[i] The logic behind the tax is simple: higher prices for Mexican imports should drive down American demand for such products and harm the Mexican economy.

 

The rationale behind this tax stems from a single assumption that appears to guide most of Trump’s decision-making:

 

  • America, as the world’s largest economy and super power, can withstand and outlast any other country or economy in a trade war

 

Through this assumption, Trump hopes that a 20% import tax would cripple the Mexican economy into submission and believes that the American economy can survive any sort of economic retaliation from Mexico. He is most likely correct. America would most likely outlast Mexico in a trade war, but outlasting Mexico does not mean that America wins. An import tax mostly falls on the consumer, and this tax would be regressive, meaning that the burden falls heavier on lower-income households. The result: many working class Americans—those who swung heavily towards Trump this election—will be feeling the most acute pain in their wallets. As Senator Lindsey Graham said on twitter, “any policy proposal that drives up the costs of Corona, tequila, or Margaritas is a big-time bad idea. Mucho Sad.” Mucho sad, indeed, Senator Graham.

[i] http://www.cnn.com/2017/01/26/politics/donald-trump-mexico-import-tax-border-wall/