While the White House floated, then quickly backed off, a proposal for a 20% tax on Mexican imports to “pay for the wall”, in addition to collecting an approximate $10 billion per year in tax revenues, there would be a notable flipside to a tax that would raise prices on Mexican imports by up to 20%, and would immediately affect a wide range of agricultural goods. Mexico exported $21 billion of food and drink north of the border in 2015, according to data from the U.S. Department of Agriculture, making Mexico the 2nd largest supplier of agricultural imports to the US.
Of note, Mexico is by far the biggest supplier of avocados to the US. A trade war with Mexico would mean guacamole could become more valuable than gold.
Some other examples:
- Fresh vegetables — Imports of tomatoes, onions, chili peppers and other vegetables totaled $4.84 billion. That’s more than four times what was purchased from Canada, the next biggest importer.
- Fresh fruit — $4.28 billion of shipments, including raspberries, strawberries and avocados. Mexico sells more than twice as much fresh fruit to the U.S. as the No. 2 importer, Chile.
- Wine and beer — Hold that Corona? Mexico led this category, importing $2.7 billion, almost $1 billion ahead of its biggest competitor, Italy.
- Snack foods — With $1.72 billion of imports, Mexico is No. 2 here, although Canada sells roughly twice as much into the U.S.
In total, in 2015 Mexico exported some $316 billion in goods and services to the US, among which vehicles ($74 billion), electrical machinery ($63 billion), machinery ($49 billion), mineral fuels ($14 billion), and optical and medical instruments ($12 billion). Under a border tax, US based buyers of any Mexican imports would seen almost instant 20% passthru surcharge.
On the other hand, food exporters to Mexico would benefit from not paying taxes. As Bloomberg notes, despite running an overall trade deficit with Mexico, U.S. food and drink exports to its southern neighbor don’t lag far behind, at $17.7 billion for 2015. The U.S. typically carries a trade surplus with its southern partner in years when grain and oilseed prices are high, as they were for most of the previous decade. Mexico was the biggest buyer of U.S. corn, soybean meal, rice and dairy products in 2015.
Lindsay Graham – who this afternoon reminded Trump that Mexico is America’s third largest trading partner, and that any tariff we can levy they can levy – probably put it best when he said:
Simply put, any policy proposal which drives up costs of Corona, tequila, or margaritas is a big-time bad idea. Mucho Sad. (2)
— Lindsey Graham (@LindseyGrahamSC) January 26, 2017
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