O-SenseI was planning to write on a different topic but the brouhaha between the U.S. and Mexico over trade demands attention because of the potential impact on the Idaho and the U.S. economies.
Last week, Trump moved forward to build a wall between Mexico and the United States. To cover the $12 billion to $15 billion cost, Trump press secretary Sean Spicer raised the specter of a 20 percent tariff (tax) on Mexican imports. Some House GOP members are pushing a massive import tax that could apply to all U.S. exports, not just those from Mexico.
As a consequence of the rising tensions, Mexico President Enrique Peña Nieto canceled a visit to meet with Trump this week. Trump couldn’t contain himself tweeting last Friday: “Mexico has taken advantage of the U.S. for long enough. Massive trade deficits & little help on the very weak border must change, NOW!”
Some claim that the U.S., because its economy is 18 times bigger that Mexico’s, can force Mexico to accept a massive tariff. That is naïve. The Spicer 20 percent proposal would be the U.S. equivalent of a nearly $200 billion tax increase. Mexico will be forced to fight back, probably through retaliatory trade actions of its own.
Idaho Sen. Jim Risch, a member of the Senate Foreign Relations Committee told Politico last week that “[i]t's not a good start, there's no question” while expressing optimism that U.S./Mexico relations will improve over time.
There is tremendous danger in these developments. Last year, through November, Mexico was the second largest source of U.S. exports by U.S. companies, totaling $211.8 billion. That was more than double our exports to China and just behind the $245.6 billion exports by the U.S. to Canada. U.S. trade with Mexico alone supports millions of U.S. jobs.
Idaho is particularly at risk if a trade war erupts. Idaho’s second largest trade partner is Mexico. And, Mexico is the single largest export market for Idaho agriculture with particular importance for Idaho’s multi-billion dollar dairy industry. In 2015, over 71 percent of Idaho’s exports to Mexico were farm-related, according to the Idaho Department of Commerce. Tens of thousands of Idaho jobs are tied to trade with Mexico.
Though Trump’s spokesman has now walked back the talk of a 20 percent tariff on Mexican imports as only one potential approach, the consequence of such an action demands that such an idea be tabled permanently.
Policymakers need to crack open a history book and look up “Smoot-Hawley”. That was a 1930 measure passed by Congress to drastically raise U.S. tariffs on imports and was sponsored by a U.S. Representative from Oregon, Willis C. Hawley, and a U.S. Senator from Utah, Reed Smoot. The goal was to boost U.S. jobs and U.S. industry by reducing foreign competition. It succeeded in reducing U.S. imports by 66 percent between 1929 and 1933.
But, it triggered retaliatory tariffs by a wide variety of U.S. trade partners, with horrendous results. U.S. exports dropped by 61 percent and U.S. unemployment jumped from 8 percent in 1930 to 25 percent in 1933. It was a key contributor to the depth and severity of the Great Depression.
Foreign trade today is far more important to U.S. economy and a modern day trade war could prove even more harmful.
That sobering history has not been forgotten by all U.S. policymakers. Republican U.S. Senators Ben Sasse of Nebraska and Lindsey Graham of South Carolina both warned last week that tariffs would drive up the cost of goods for American families, and Graham correctly warned that such would be a huge barrier to future U.S. economic growth. Both Walmart and Target have pointed out that tariff hikes would particularly harm low- and middle-income Americans.
It is utterly irresponsible for any U.S. Administration to casually trot out a trade war as a potential policy tool. It is time to cool the rhetoric and focus on expanding our economy rather than putting it at risk. Idaho policymakers need to enter the fray and insist that a trade war, in particular with Mexico, must be off the table.
Steve Taggart is an Idaho Falls attorney specializing in bankruptcy (www.MaynesTaggart.com). He has an extensive background in politics and public policy. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .
