Avoiding a disaster: Trump’s tariffs and their posible consequences to México

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The 5% tariffs increase that would have been applied by the US government to Mexican goods could have affected affect more US consumers than Mexican ones

President Trump's threats to raise tariffs on all goods from Mexico to the United States would have had considerable consequences for both countries. From the first establishment of 5% of tariffs, each month this same figure would have risen until reaching a maximum of 25% for October. This rise in prices would have lead American consumers to pay higher costs in products such as cars, televisions, beer, fresh vegetables, among others, while in Mexico the devaluation of the peso could benefit them.

Leer en español: Evitando el desastre: Las posibles consecuencias de los aranceles de Trump a México

The dissatisfaction of the North American president in front of the handling of the Mexican State on the flow of illegal immigrants who pass daily by the border made him take these actions, at least until both governments reached an agreement last friday. The introduction of tariffs managed to capture the attention of Mexico and led to conversations between leaders of both countries.

According to a CNN en Español, Wall Street shares showed a decline since Trump announced the increase in tariffs.

Several Republican congressmen have shown their concern and even the Mexican president, Lopez Obrador, published an open letter addressed to Trump clarifying that "social problems will not be resolved by tariffs or coercive measures. The Statue of Liberty is not just an empty symbol. With all your respect, you may have the sovereign right to express it, but the slogan 'America First' is nothing but a fallacy."

United States and how it would have been affected

Mexico is the third largest trading partner of the US after China and Canada, so the rate increase would have had a significant impact not only for American consumers, but for national companies and workers. For the economy of each state, the impact depends on how dependent the largest supplier industries in Mexico are, as is the case of the automobile, energy and agricultural industries.

The New York Times showed that Texas and Michigan are two of the states that would have been the most affected. In the first, 5.9% of imports as a percentage of GDP come from Mexico, while in the second, the percentage is almost 10.5%.

Michigan is especially dependent on the car industry, since there is an American complex of production and distribution chains that ship finished products and components back and forth across the border. In 2018, the import was $ 56 billion in Mexican goods.

Read also: This has been the impact of trade war on USA's economy

From a more general perspective, total US imports were $ 346.5 billion, which included goods such as vehicles ($ 93 billion), machinery ($ 63 billion), vegetables ($ 5.9 billion) and fruits ($ 5.8 billion), according to CNN data.

Then, for consumers, car prices could have increased by an average of $ 1,300, and even cutting production could be reduced by 3 million less. American cars import key components of Mexico, like engines.

In addition, taking into account this, companies in this industry would have also been affected under higher component prices. USA Today says it could have even led to the loss of 400,000 jobs in the country.

Cars are not only consumed inside the US, but are also exported abroad, which would also affect the trade of this good.

Another one of the problems that the increase of the tariffs would have brought would have been to put in danger the ratification of NAFTA (treaty of free commerce between Mexico, the USA and Canada).

Repercussions for the Mexican economy

According to the BBC, Mexican exports to the North American market were US $ 346,500 million last year, a figure that represents 80% of all foreign trade in Mexico. According to Rolando Cordera, researcher at the National Autonomous University of Mexico (UNAM), a reduction in consumption by the US, the main market, would affect the country.

First, Trump's announcement caused the Mexican peso to lose value against the dollar, which could help the production of certain goods, according to specialists. An example is the case of avocado, which does not need foreign inputs for its production and which, when sold in dollars, receives a greater amount of Mexican pesos due to its devaluation.

LatinAmerican Post | Valentina Moya

Translated from "Evitando el desastre: Las posibles consecuencias de los aranceles de Trump a México"