Shut Down the Border! Economic Costs

President Donald Trump threatened to shut down the southern border over Thanksgiving. Why? Until Mexico gets control of its border with the United States, of course… which is code for we are not letting any more brown people in. Yes, it is that obvious at this point. The president is angry because the courts are telling him he cannot do whatever he wants. This is why he is on a tear against the Ninth Circuit and was rebuked by Supreme Court Justice John Roberts. He is angry because Democrats took the House and will bring oversight, which he does not accept as legitimate. But he is most angry because the country is fast becoming something he and his base do not like, a non-white country. This is what this very real threat to shut down the land border with Mexico is about. He wants to punish Mexico for not doing his bidding, not understanding he is about to punish the United States.

So let’s examine the economic consequences of this ill thought idea, but one that his friends in the far right love, such as Lou Dobbs and the Fox, Breitbart, Daily Caller crowd. Let’s not ignore the far right, such as the Klan and Storm Front.

Some of these effects are obvious and require little thought. Merchants along the border will lose a lot of business. Why? Many people still cross the border to buy goods in the United States. Border towns all along the Rio Grande Valley, Arizona, and California rely on this economic flow. It is a bonus that many of them are part of the Democratic voting block. This is the way Trump and the far right conceive of US Politics. If you are not with us, you are the enemy and should be eliminated.

The other obvious effect is that American citizens who live in Mexico will be cut off from the United States. There are American citizens who live in Tijuana, for example, who will have trouble getting to jobs and schools in the United States. They live down there because it is cheaper. Many are also senior citizens and this way their money goes much farther.

However, here are some facts that you may consider when you look at this question. And some of these are not well known either.

The United States third largest trade partner is Mexico. Incidentally, since Trump came to power, that country has been preparing to diversify from that central role. This is why dairy farmers are having trouble selling milk in Mexico. President Donald Trump has already imposed tariffs on Mexican products as well. Ergo, a $1.2 billion industry is at risk.

In perhaps an unprecedented letter to President Donald Trump, the National Milk Producers Federation (NMPF), the U.S. Dairy Export Council (USDEC), the International Dairy Foods Association (IDFA) and more than 60 dairy associations and cheese makers have asked President Donald Trump to suspend tariffs on Mexican products.

The groups and companies are urging the President to negotiate and work collaboratively with Mexico to complete a new, modernized North American Free Trade Agreement.

In their letter, these groups and companies say: “Unlike Canada, Mexico has long been a model for open dairy trade with the United States. Through investment and cooperation with Mexico, we have succeeded in becoming the country’s biggest foreign dairy supplier, with cheese purchases last year alone totaling nearly $400 million. Today, Mexico accounts for approximately one quarter of foreign demand for Made-in-America dairy products and is our most reliable trading partner….

This is not a minor thing. The United States produces far more milk than it consumes. We are seeing a glut in milk production in the United States, which is leading to cheaper prices short term. However, the current trade wars are leading to the closing of markets for American products. Oh and Mexico is looking to diversify and send her products to both Asia and Europe.

Do you like your Ford? What about your KIA? Maybe that Nissan? Whatever brand you drive, under the new trade rules prices were going up anyway. Here, from Forbes:

Everywhere you turn, there is a cost. While automakers have been patiently absorbing the price of the roiling uncertainty this administration has unleashed on the automotive industry, that’s likely to end once policies get finalized. According to the New York Times, to avoid tariffs, North American content in light vehicles will need to rise to at least 75 percent from the current 62.5 percent requirement. Not only that, but additional requirements all extract their own pound of flesh:

* Vehicles must use more domestic steel and aluminum

* Automakers must produce more of the parts domestically

*A significant amount of labor must be provided by workers earning at least $16 per hour

In short: it’s going to cost you. “We think car prices will rise,” Krebs said. “Vehicle costs are going up for other reasons as well — higher transaction prices because of the richer mix of utility vehicles, metal tariffs, more technology content). A new NAFTA agreement will only add to the price headwind consumers are already facing.”

Close the border, and the flow of goods and services will grind to a halt. This will affect multiple production chains, that will make things more expensive in the United States, and could lead to job losses. We know the president wants to target the Mexican auto industry. He has said this more than a few times. For some reason, that is stuck in his craw, but doing this will also bring multiple plants in the United States to a halt. The president, in spite of his Wharton School of Business education, seems to be missing this basic information. This is no longer the 18th century.

Then there is agriculture. The United States imports quite a bit from food from Mexico, Especially in the winter, we are not that self-sufficient with some products. Do you like your berries? What about your oranges? Maybe peaches? And it gets worst. We export a lot of grain to Mexico, such as corn, According to the Financial Times early in the Trump administration:

US farmers export billions of dollars of maize to its birthplace. The sales to Mexico range from yellow corn heading for chicken farms to batches of popcorn for cinemas.

Corn is the biggest of the US’s $17.7bn in agricultural exports to Mexico, a value that has risen fivefold since the countries signed the North American Free Trade Agreement. Mexico’s exports to the US have grown even faster to $21bn, led by fruits and vegetables such as lemons and avocados.

Farmers, traders and food executives on both sides of the border are therefore paying close attention to Donald Trump. The US president has pledged to revise Nafta, wall off the border and possibly slap Mexican imports with tariffs. Trade in agriculture could end up a casualty.

Mexico has already replaced a lot of that American corn with Brazilian corn. US Farmers are already feeling the pinch. The border closes, and they will feel it even more. But so will the American consumer at the supermarket, with more expensive food. In a world of flat wages, that is the last thing you need.

We know that five million jobs are directly tied to trade with Mexico. With these disruptions, sooner or later the American economy will go into a recession One is already baked into the pie. And it is in large part a consequence of this America First economic policy that makes zero sense. That is unless this is meant to stop demographic change. In which case, do carry on.

Historian by training. Former day to day reporter. Sometimes a geek who enjoys a good miniatures game.

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