How to Localize NAFTA

by April 3, 2017

 

Proposed tariffs on Mexican wares will have an impact on American purchasers—not just of pinatas, but big-ticket items such as computers and applicances. ("East Los Angeles" image by Ralph Hockens via Flickr, CC By 2.0)

Proposed tariffs on Mexican wares will have an impact on American purchasers—not just of piñatas, but of big-ticket items such as computers and appliances. (“East Los Angeles” image by Ralph Hockens via Flickr, CC By 2.0)

Donald Trump released a draft of key proposals for renegotiating the North American Free Trade Agreement to members of Congress last week. It appears to strike a balance between trade hawks and those who back a free trade agenda. And while the new administration has backed down on its threat of a 20 percent tariff on goods imported from Mexico, consumers are still wary of possible developments. 

What would a rise in import taxes do to the price of goods produced in Mexico? How would it impact U.S. employment? Even U.S. regions far from the border can anticipate feeling the affects. To help jumpstart a story for your readers Jill Gonzalez, an analyst from WalletHub, took on how aspects of a tariff might affect consumers. 

Higher prices, disappearing products

Trump has talked tough about slapping a possible 20 percent import tax on goods from Mexico. For most Mexican businesses that will mean an increase in sticker prices, so the tariff would quickly be passed on to Americans. “Such a tax would directly affect consumers. There would be a considerable rise in prices on goods and services produced in Mexico, which span more industries than many Americans realize,” Gonzalez says. But don’t expect a hefty increase on goods across the board. She continues, “It’s a bit more complicated than that. Prices for some goods can slightly or significantly increase, while others can actually undergo a halt to production altogether.” 

And it’s not all piñatas and tequila. As Gonzalez notes, most Americans aren’t aware of the breadth of Mexican manufacturing. “Agriculture and auto industries would be the most affected, with appliances coming in a close third,” she says. “Even most ‘American-made’ products that fall within those industries depend on parts from Mexico.” 

The timing of price hikes would likely depend on the type of product. According to Gonzalez, “The impact could be immediate on certain products, especially food products, while for others we might see an increase before the winter holidays.”

The employment picture

The primary goal of Trump’s proposed import tax increase is to make American companies more competitive with their foreign rivals. While it could increase domestic employment in some sectors, the specific impact is unknowable. Says Gonzalez, “U.S. employment would be affected depending on location, since some states have stronger relations with Mexico than others. Agriculture and auto industries would again be most affected.” To see how your region may fare, look at WalletHub’s list of the states that would be most affected by a trade dispute with Mexico.

While prices may spike and employment may shift, Gonzalez says fears of another recession are overblown. “The likelihood of a recession is quite slim for both countries, since each has trading agreements with other countries. However, a trade war with Mexico could also impact U.S. agreements with other countries and create global mistrust.”