Trump's tariff plan creates border wail
Texas Comptroller Glenn Hegar joined a chorus of business leaders citing the economic risks of President Trump’s plan to impose tariffs on Mexico as punishment for illegal immigration.
“I fully understand and support President Trump's efforts to increase security along our southern border,” Hegar, a Republican, said a statement Friday. “However, the free flow of goods between Texas and Mexico is critical to the Texas economy — an economy that has been a national leader in growth and job creation over the last decade.”
“Considering that trade with Mexico represents approximately 40% of trade volume in Texas, the negative impacts felt by Texas could quickly ripple through the national economy,” Hegar said. “So I urge the leaders of both nations to find a swift and lasting resolution to this issue.”
As the state’s accountant, Hegar monitors and reports the flow of revenues into the state, primarily sales tax, and tells lawmakers how much they can spend. Cross-border shopping along the Rio Grande accounts for a sizeable share of monthly revenues, which have set records every month for the last year.
Bond-financed toll bridges spanning the river rely on commerce across the region.
Mexico is one of the U.S.’s largest trading partners, with a bilateral relationship valued at $671 billion last year, according to the U.S. Trade Representative’s office.
The plan to impose punitive tariffs coincides with a sudden drop in the price of oil, a major source of revenue for Texas.
The Texas Association of Business and the Texas-Mexico Trade Coalition joined forces on a statement condemning the tariffs as an inappropriate response to immigration issues.
“Immigration and trade are entirely separate issues and need to be treated as such by our administration,” said Eddie Aldrete, chairman of the TMTC. “The U.S. does not need to be distancing themselves from Mexico but working with them in a united effort at the southern borders.”
“While the date could end up being postponed, the shockwaves are traveling in the meantime,” according to a note from BNP Paribas. “We expect the Mexican Economy Ministry to prepare tit-for-tat measures, just in case. Adverse implications for inflation and the USMCA process are evident, which could reinforce our expectation that no monetary policy easing is at sight.”
In announcing the new tariffs on Thursday, Trump said he was taking the action to protect a U.S. economy “invaded by hundreds of thousands of people coming through Mexico and entering our country illegally.”
Trump said the tariffs on products entering the U.S. from Mexico would begin at 5% on June 10 and rise to 10% on July 1.
“If Mexico still has not taken action to dramatically reduce or eliminate the number of illegal aliens crossing its territory into the United States, tariffs will be increased to 15% on Aug. 1, 2019, to 20% on Sept. 1, 2019, and to 25% on Oct. 1, 2019. Tariffs will permanently remain at the 25% level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory.”
“Should Mexico choose not to cooperate on reducing unlawful migration, the sustained imposition of tariffs will produce a massive return of jobs back to American cities and towns,” Trump said.
Manufacturing trade groups expressed confusion over Trump’s abrupt policy announcement as he was expected to begin seeking congressional approval of the new trade treaty with Mexico and Canada intended to replace the North American Free Trade Agreement. The new tariffs arose just days after Trump lifted tariffs on Mexican and Canadian steel.
“The administration’s movement to impose tariffs undermines the same administration’s effort to get Congress to ratify the U.S.-Mexico-Canada Trade Agreement,” Aldrete noted.
Under NAFTA, major firms designed manufacturing and supply systems using rail lines across the Rio Grande. Firms such as Toyota, General Motors and Ford have plants in both countries. In the assembly process, cars and trucks can cross the border several times in the process of final assembly.
“These proposed tariffs would have devastating consequences on manufacturers in America and on American consumers,” said Jay Timmons, president of the National Association of Manufacturers. “We have taken our concerns to the highest levels of the administration and strongly urge them to consider carefully the impact of this action on working families across this country.”
Although U.S. consumers buy more from China, the U.S. sells more to Mexico, Aldrete said. Mexico exported $346.5 billion in goods to the United States last year, from vehicles to fruits and vegetables.
In March, about $20 billion worth of goods flowed through Laredo. The growing border city recently passed Los Angeles as the nation’s largest port.
Although the policy — if enacted — could harm the economy, Trump’s supporters see the hardline stance as a political winner heading into the 2020 presidential election.
“Democrats in Congress are fully aware of this horrible situation and yet refuse to help in any way, shape, or form,” Trump said. “This is a total dereliction of duty. The migrant crisis is a calamity that must now be solved—and can easily be solved—in Congress.”
Republican Texas Gov. Greg Abbott joined Trump in blaming Congressional Democrats for the tariffs, which he said he did not favor.
Republican Lt. Gov. Dan Patrick, Trump’s leading supporter in Texas, has not issued a statement on the tariffs but has previously backed the president’s plan to build a wall on the U.S. side of the Rio Grande and offered state funds to help finance the project. Patrick, who headed Trump’s 2016 campaign in Texas, missed the opening day of the Texas Senate as presiding officer to help Trump write a speech about the border wall.
Although Trump has pitched the tariffs as punishment for Mexico, Texas economist Ray Perryman said that tariffs are actually a form of taxation on U.S. consumers, who eventually pay the penalties through higher prices.
Trump’s escalating trade war with China has already resulted in lower import volume in the first quarter compared to the same period in 2018.
“Even beyond tariffs are changes in investment patterns, supply chains, and strategic plans,” Perryman said. “Chinese investments in the U.S. have fallen sharply. Already, corporations have announced moves from China to other nations for manufacturing facilities to avoid trade complications.”
The Perryman Group estimates that the proposed tariffs would lead to an increase in direct costs of about $28.1 billion each year, and when multiplier effects are considered, the net losses to the U.S. economy include an estimated $41.5 billion in gross domestic product and $24.6 billionin income each year. The overall job loss would be about 406,000.
Texas would bear the lion's share of this loss given the extensive commerce that occurs between the state and Mexico, Perryman said. The Perryman Group estimates that the proposed 5% tariff would result in additional direct costs of $8.7 billion. When multiplier effects are considered, these higher costs would likely cause losses to the Texas economy including almost $11.9 billion in gross product and nearly $7.1 billion in income each year as well as 117,335 jobs.
In El Paso, Jon Barela, chief executive officer of the Borderplex Alliance, a regional economic development organization, called the tariffs " a consumer tax on Americans that will lead to job losses in the Borderplex region and throughout America."
"The Borderplex region is the fourth largest manufacturing hub in North America and the president's actions will have a devastating impact on our local economy," Barela said in a prepared statement.
The “Borderplex” includes maquiladoras, or factories, in Juárez, Chihuahua, by companies from the United States and other countries. El Paso-area companies support the maquiladoras by making parts for the Mexican plants and operating warehouses and other logistics operations for the assembled products coming out of Mexico.
The Borderplex includes Santa Teresa, N.M., where construction of a $73 million section of Trump’s border wall began in April 2018. The wall will stand 18 feet to 30 feet tall in different areas, depending on the terrain.