Trump’s Tariffs are a Lose-Lose

By: Carlos Sanchez

"Trump signs executive orders in the Oval Office" (Image via BBC)

Somebody in President Donald Trump’s inner circle needs to give him a lesson in UMD’s ECON200. In such a globalized world, tariffs such as the ones Trump is imposing are a lose-lose situation. 

Americans rely on cheap, reliable supplies from Mexico, including fruits, vegetables, car parts, and medical equipment. Thus, higher inflation would quickly arise from any tariffs imposed on Mexico.

Trump knew that these tariffs would hurt Americans at a time when their pockets are already stretched too thin, which is one of many reasons he keeps rolling them back. 

Multiple analyses by the Peterson Institute for International Economics and the Yale University Budget Lab suggest that an average family may face price increases of over $1,000. Many families have already been running with little to no emergency funds after COVID-19, and this will only be another roadblock to financial stability. 

Restaurants will feel the burn of tariffs much more than many industries. One glaring example is Mexican restaurants, many of which buy massive quantities of avocados to make guacamole. As tariffs raise the prices of avocados, restaurants will need to pass the price on to consumers to keep the same levels of profit.

At the end of the day, what is Trump’s point in imposing tariffs on Mexico? Trump has said the tariffs are meant to force Mexico to increase its fight against fentanyl trafficking and to stop illegal immigration, while also suggesting that there’s a trade imbalance and more factories must be in the United States. I’ll circle back to the first point in a second, but regarding the second point: A trade imbalance between two friendly countries helps both nations, as the goods that one nation has can supplement the goods the other nation needs. As said at the beginning, it's simple economics. Eighty percent of Mexico’s exports are to the U.S., which could put Mexico’s social and political stability at stake, as well as potentially cause a depression in a worst-case scenario for Mexico. 

Mexico has already done enough to appease Trump. Not only has Mexico severely decreased migration to the U.S., but they have hunted cartel leaders in dangerous fentanyl strongholds as well as delivered into U.S. custody 29 of the country’s most powerful narcos. That said, many of Trump’s goals have already been successful even before tariffs have been enacted. As unfortunate as it may be, tariffs seem to be closer and closer every day.

These tariffs may have other ramifications as well. For instance, sending Mexico into any sort of economic contraction will not only fuel nationalism and anti-democratic movements, but it will increase the power of cartels and drive more Mexicans to escape north into the U.S. Perhaps this is part of Trump’s plan as well, considering that by increasing the flow of migrants, he has a reason to continue levying tariffs on Mexico since they are doing a worse job at controlling the flow of migrants after these tariffs. 

Of utmost concern are the potential geopolitical consequences of tariffs. By picking fights with our closest allies, Trump is giving China an opportunity to exert its influence in the Americas by worsening its relationship with Mexico. 

At a time when trade between both countries has been largely beneficial, turning off this valuable economic pipeline will lead to Mexico seeking economic prosperity not just in Latin America but across the Pacific as well.