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EDITORIAL — Tariffs: Bad business and bad for business

President Trump’s gambit on Mexico — he’s threatening to impose a 5 percent tariff on all goods from there starting June 10 if our southern neighbors don’t slow the number of migrants crossing our border — is high risk, and may backfire.

Economist Ray Perryman of the Perryman Group in Waco said an economic analysis of those tariff implications suggest they may cost some 400,000 U.S. jobs, including 117,000 in our state.

“Mexico has long been a top trading partner for the United States. In fact, Mexico recently passed China to become the largest, due in part to trade issues with China which have reduced the volume of U.S.-China trade,” Perryman said in an issued statement Monday. “To impose a tariff on all goods from our largest trading partner will cause significant cost increases and other harms to our economy.”

Perryman’s concern was amplified by U.S. Sen. John Cornyn, R-Texas, who noted on the Senate floor Monday that, “My state enjoys a strong relationship economically with Mexico because of that 1,200-mile common border.”

What’s at issue? Well, Texans and other Americans themselves would likely have to pony up that 5 percent tariff cost, Perryman wrote, because such increases are typically borne by consumers and producers. Here’s what else is at stake, Perryman says: “After adjusting for likely prices responses across the spectrum of goods the U.S. imports from Mexico, The Perryman group estimates that the proposed tariffs would lead to an increase in direct costs of about $28.1 billion each year … .” Add multiplier effects he said, and net losses would be $41.5 billion in gross domestic product and $24.6 billion in income. The national job loss would be 406,000.

Because Texas and Mexico trade so heavily, the cost here would be dear: $11.9 billion to our economy; $7.1 billion in income; 117,335 jobs. If Mexico retaliates, Perryman says, the costs would be steeper. U.S. products would become unaffordable for Mexican consumers; purchases reduced; U.S. companies, unable to sell their goods, would suffer.

Moreover, supply chains that operate across the border in what economists call our integrated economy would also suffer. And, Perryman notes, replacing the North American Free Trade Agreement — there is no replacement in effect — would become more difficult.

Perryman and other conservatives tout the fact that free trade has clear benefits. Economic theory and practice support that position.

Cornyn rightly cautioned the Trump administration that Mexico plays an important role in the U.S. economy; we should appreciate his concern for protecting our border, the senator suggests, but the cure might be worse than the malady.

Tariffs are bad business, and bad for business. Mexico is our ally, not our enemy. This is no way to treat friends, let alone U.S. producers, consumers and workers who’d be harmed.

 

See also: Tariffs could hurt Texas economies as much as Mexico’s, analysts say