I will start by saying that I don't particularly disagree with the fact that we have a major problem at the borders in this very moment. We seem to be having an unusual amount of people trying to cross illegally and even though I don't particularly drink the nationalist kool aid, there is an obvious need for an efficient system of immigration.
economist.com
Saying this however, does not mean that I agree nor understand how these proposed changes to our trade is going to help us solve the problem. It seems to be just a punitive move from a position of authority, more than a practical solution and/or compromise. In other words, we are telling Mexico to fix what no country in the world has been able to fix up until now, or else.
Unless you've not gotten wind of it, our government is to now impose tariffs on all products coming from Mexico starting at 5% and moving on up, until they "fix" the problem. Now, what are the ways we would measure such fix, the parameters and expectations, that has not been put forth and I suspect it might not even happen.
What is really concerning to me however, is not that there's an attempt to alleviate the problem. That, is something we need to be actively trying to do, but that the notion that these tariffs will punish Mexico, and Mexico alone is comical at best. So I have to ask: Who pays the tariffs? You see, if you don't know, then you are probably not concerned at all, but you should be.
You see, I've been importing and exporting for a little over a decade, and I can tell you without an inch of doubt that tariffs are paid by the Importing Companies. I've brought containers of merchandise from different parts of the world, and to release the merch the importer must clear all the costs tied to customs. This, translates to an added value to COGS (Cost of Goods Sold) that in turn is used to calculate MAP (Minimum Advertised Price) and Retail (Nominal Price).
All this mumbo jumbo might be confusing, but suffice to say that customers are the ones who foot the bill, and in the cases where the price exceeds market efficiency, the product in question ceases to be viable and it disappears. You are literally priced out of competition.
What can we expect from this new trade war? Well, short term the speculative markets will probably take a nosedive, but the cost of produce will go up significantly, since we buy billions of dollars a year from Mexico (due to their lower labor costs).
Important question however is this: Will this hurt Mexico? Of course it will, their sales will be reduced, which in turn will hurt their GDP and weaken their economy. We could easily see their currency lose as well, since we control the Petro Dollar and pretty much dictate through violence its dominance. But, let's not be confused about one thing, this measure is not analogous to natural medicine, it's more accurately to compare it chemotherapy.
MenO
