JHI on the Issues 2016: Would a Tariff With Mexico Bring Back Jobs?

Candidate Statement:  During the first presidential debate, Donald Trump said, “What you do is you say, fine, you want to go to Mexico or some other country, good luck. We wish you a lot of luck. But if you think you're going to make your air conditioners or your cars or your cookies or whatever you make and bring them into our country without a tax, you‘re wrong.”  He had previously stated on September 15, 2016, that, "When that [Ford] car comes back across the border into our country that now comes in free, we're gonna charge them a 35% tax. And you know what's gonna happen, they're never going to leave."

Summary: Adding a 35 percent tariff on imports would raise the price of consumer goods for average Americans and would probably lower overall consumption, as well as the American standard of living.  Further, the decrease in manufacturing employment is a global phenomenon present in other countries from Europe to Asia.

Talking Points:

  • A tariff on imports from Mexico would result in a net loss of U.S. jobs, as 40% of the content in Mexican imports originates in the U.S.[1] 
  • A tariff would hurt U.S. businesses, making them less competitive. American businesses, such as car manufacturers, rely on production in Mexico as well as Canada.
  • Mexico is America’s second largest goods export market at roughly $230 billion exports in 2015.  We would expect Mexico to impose retaliatory tariffs in return.  Most of our goods exports are high value add.  We run a roughly $55 billion traded goods deficit with Mexico and a roughly $10 billion service surplus with Mexico.

Analysis:

  • In many cases, the United States and Mexico (and Canada) make goods together in a co-production model.  Adding a 35 percent tariff would impact the competiveness and potential survival of many U.S. businesses.  For example, American cars could no longer be competitive in global markets without the benefit of less expensive parts and labor from Mexico.  In the medium term, the cost of manufacturing a car in the United States would increase, which would probably reduce exports of U.S. cars.
  • A very plausible impact of a new tariff policy would make U.S. products too expensive to export, resulting in a net loss of U.S. jobs.
  • Overall employment levels in the manufacturing sector have declined.  But this negative trend has been steady for 50 years and began well before NAFTA was conceived.  This decline is related to global factors, new technologies, automation, and increased competition from China and other Asian countries.[2]  Indeed, G-7 nations from Europe and Asia have seen manufacturing jobs decline for decades; moreover, most of these countries have marginal economic relationships with Mexico.  It is not plausible to argue that Mexico is the only driver or even a main reason for the downward trends in the U.S. manufacturing base and overall employment in the manufacturing sector. 
  • JHI discusses policies that would help improve security and economic ties to Mexico in its book, Choosing to Lead.

Questions the Press should be Asking:

  • How would U.S. manufacturing survive with a 35 percent tariff on products needed to make goods in a world of integrated global supply chains?
  • If manufacturing jobs have been lost due to technological development, how will a tariff bring them back?
  • What would tariffs mean for the cost to produce U.S. goods and for U.S. exports, and ultimately U.S. jobs?
  • How do you account for declines in manufacturing jobs (not output) in other G-7 countries that have marginal trade relationships with Mexico?
  • What role does technology and automation play in the loss of jobs? 
  • What percentage of the U.S. economy should be driven by manufacturing and why?

[1] https://www.wilsoncenter.org/sites/default/files/Working%20Together%20Full%20Document.pdf

[2] Martin Neil Bailey and Barry P. Bosworth, “Manufacturing: Understanding Its Past and Potential Future,” Journal of Economic Perspectives, Winter 2014.