We are told that tariffs are terrible because our consumers must pay them – not our trading counterparts. We are never told that there is a huge disincentive to pass them on. Usually there is a domestic alternative that looks suddenly rather cheap. If the foreign producer raises their prices by the full 25% tariff then much of their business will walk away.
We are also told that the adjustments we must make to our supply lines will be very inefficient. We must stop sending those cars to Mexico for rear view mirrors because there is a super cheap supplier of mirrors there. We are so in love with cheap imported goods that we can’t see their destructive impact on American jobs.
So why is Mexico freaking out over the loss of exports while our experts tell us that it doesn’t matter if we ever export anything to anyone?
The answer, of course, is jobs. Mexico looks at exports as job creators just like China does and Taiwan and Singapore and South Korea. We used to call them Tigers because they had discovered a miraculous way to get out of poverty and reach first world wealth levels. Well, there wasn’t any magic to it. All they did was sell everything they could to us and buy nothing. In return, they got jobs, jobs, jobs. Initially they sold cheap toys but eventually, it became Korean cars and Taiwanese computer parts.
Mexico was late to the game but it figured it out eventually. They know that the Trump tariff threat would destroy the plan so when he threatened, they responded – immediately. Chinese consumers and businesses are certainly less well off when they can’t buy (say) Microsoft products. They must use some inferior local product. Are their economists whining about poor efficiency? The consumers of Mexico are most certainly worse off when their government focuses all their attention (subsidies) on exports but the low unemployment rate is a perfect salve.
We hear a lot of talk about how global economic prosperity is rising and the reason is entirely because of these mercantilist policies in Asia (including India and Japan). We are their patsy.
Mexico has sent its motley national guard to its southern border. Is there anything else you would like Mr. President?