Trump’s threatened tariff on Mexico and Canada could cost US households $1,300 a year
Trump’s threatened tariff on Mexico and Canada could cost US households $1,300 a year . The calculations, which do not include the effect of potential retaliation, reinforce the theory that inflation could go up with the Republican’s plan to slap Washington’s North American partners with a 25% levy
EL PAÍS América
Donald Trump’s threat to impose a 25% tariff on Canada and Mexico —the United States’ partners in a free trade agreement in force for three decades— as a way to pressure these countries to crack down on immigration and alleged illegal drug trafficking has not yet materialized. And following the president-elect’s conversation with Mexican President Claudia Sheinbaum on Wednesday, it might not happen at all. But a few calculations have already been made to anticipate potential scenarios.

The Center for American Progress Action (CAP) estimates that the average household would spend about $1,300 more per year due to these import taxes. Brendan Duke, senior director of economic policy at CAP, believes that the burden will largely be passed on to American consumers in two ways. First, through an increase in final prices resulting from a transfer of costs by U.S. producers who will have to pay higher tariffs when purchasing materials and equipment overseas.

Duke’s team estimates that the average annual outlay will be approximately $490. “It all depends on the spending structure of the families,” this expert explained to EL PAÍS, noting that some families will see an even greater increase if, for instance, they are furnishing a house.

But it is not just the price of goods that will be affected; the prices of services will also go up. Duke explains, as an example, that if medical equipment imported from Mexico becomes more expensive due to these customs duties, this will be reflected in an increase in medical bills.

The second way people can be affected is direct: imported goods will simply go up in price. The new tariffs will mean the average family has to pay about $150 more on gasoline. “In the northern Midwest, oil comes from Canada, and those who drive in that area will pay more.” Some food will also cost more, such as avocados and lemons, for which trade with Mexico is crucial. The CAP estimates at least a $100 increase in the price of electronic devices. Clothes, furniture and toys will also go up in price.

During his campaign, Trump repeatedly insisted that tariffs are paid by exporters when the truth is that they are a percentage of the price a buyer pays to a foreign seller. In other words, it is the importer who pays. Economists generally view tariffs as one of the least efficient forms of government revenue, but members of the future administration see them as a negotiating tool because prices ultimately affect exporters’ sales.

But for Duke, like many other experts, these proposals are inflationary, as were the campaign’s threats to impose an across-the-board tariff of 10% on all imports and 60% on those from China. In that case, household costs would rise by about $2,500 a year for middle-income households, according to CAP’s calculations. The calculation for the case where linear tariffs reach 20% and not just 10% is an annual increase of $3,900.

A poll by the Harris firm for The Guardian newspaper shows that more than two-thirds of Americans believe that tariffs will increase the price of goods. And this is not just the opinion of Democrats, but also of 59% of Republicans.

Focusing on specific sectors, the Consumer Technology Association explains that with the promised tariff increases, the price of laptops and tablets could rise by 46%, video game consoles by 40%, and smartphones by 26%. The National Federation of Retailers estimates that the costs of these import taxes are too high to be absorbed by producers and retailers and that consumers could “lose between $46 billion and $78 billion a year.” This federation points out that spending on clothing could rise by a minimum of $13.9 billion a year, on toys by $8.8 billion, and on footwear by $8.5 billion.

All these issues could become even more difficult to address if interest rates are kept high to control an inflation that is at the mercy of trade impositions and possible retaliation.

There is a very recent precedent. The Tax Foundation has been reminding everyone for years that there are studies from both the government and from academics that certify that the increases in tariffs first introduced by Trump and later maintained by Joe Biden on Chinese imports have raised prices (due to the direct effect of the tariff and the reduction in competition) and reduced economic growth and employment. “In the long term, we estimate that GDP will be reduced by 0.4% and employment by 344,900 jobs,” explains this organization, which is conservative in its calculations because it does not include the effects of the reprisals that exporters may take “or the additional damage that may be deduced from starting a global trade war.”

Duke, for his part, does not rule out bankruptcies and an increase in unemployment. This is something that the Mexican Minister of Economy, Marcelo Ebrard, also highlighted. Ebrard has estimated that 400,000 jobs could be lost in the United States with this policy that future President Trump is threatening to implement.

In the end, the shockwave that tariffs will cause on two of the country’s most important trading partners could have many aftershocks throughout the economy. Mexico is the leading exporter to the United States after overtaking China months ago. Last year, imports from Mexico amounted to $476 billion and exports to this country totaled $323 billion.

The United States is the market for 80% of Mexican exports, from food, metals, manufactured goods, beverages, medical instruments and, above all, cars. In fact, the automotive industry is highly integrated in North America and Duke explains that components can cross borders up to seven times before the car reaches a dealership. That’s a lot of tariffs and the cost of assembly will multiply.

Canada is also crucial, as 66% of Canadian exports go to the United States. America mainly buys oil from its northern neighbor, but also lumber, aluminum, and uranium, primary products that can affect prices much further down the chain.

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2024-11-28
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The calculations, which do not include the effect of potential retaliation, reinforce the theory that inflation could go up with the Republican’s plan to slap Washington’s North American partners with a 25% levy
Trump’s threatened tariff on Mexico and Canada could cost US households $1,300 a year