By Dan Perkins:
President Trump recently announced that to try and get greater cooperation from the Mexican government on the problem of illegal border crossings, he announced that if illegal crossings do not stop, on June 10th he would impose a 5% tariff on all goods coming in from Mexico. As I'm a numbers guy, I see things differently than most other people. Based on the Office of Trade Representative reports, the numbers are compelling. In 2018, goods and services trade with Mexico totaled an estimated $671.0 billion. Exports to Mexico by the U.S. were $299.1 billion, whereas Mexico’s total exports were $371.9 billion in goods.
Here we go: what percentage of the entire Mexican GDP comes from exports to the United States? The World Bank says that the GDP for Mexico is $1.15 trillion. As we see above, Mexico’s total exports are $371.9 billion, and of those, $346 Billion came to the United States, making exports to us about 30% of Mexico’s GDP. Another fact is that the average household income in Mexico was $12,692 with 3.8 members in a household, based on the data available as of December 2016.
Now let us turn to the impact of the 5% tariffs on Mexican exports. Exports to the United States from Mexico are $346 billion. If we take 5% of that amount, we get $17.3 billion. That amount is equal to 1.339 million jobs, and based on data from Trading Economics, the current number of people unemployed in Mexico is 1,886,205. Should the tariffs remain in place for an extended period, the potential for layoffs could increase unemployment to 3,335,205 people or more.
One more piece of information concerns the military budget for Mexico. It is $7.103 billion or .6% of GDP, one of the lowest in the world. The final point is that President Trump wants Mexico to pay for most of the estimated $20 billion over ten years to construct the border wall.
Now that we have all the pieces to the puzzle, let's see if we can put the presentation together for President Obrador. Mr. President, “If the United States were to impose a 5% or higher tariff on everything we export to them, it would mean we will have to pay $17.3 billion.”
“If we do nothing to support the desires of the U.S. government and the tariffs were to extend over time, the unemployment in our country may increase to 3.3 million people, perhaps more.”
“America is 30% of the GDP of our country, and with these tariffs in place, we could be headed for a severe recession.”
Here are your Options:
1. Do nothing, pay the tariff and wait it out, hoping that President Trump will back away. Likelihood of success for this approach, not very good. Try to get a postponement of the tariff until the presidential election, not likely. If President Trump were to wait that long, the risk is that with a strike of a pen, he could double the tariffs to 10% or more.
2. Offer to double the military budget to 1.2% of GDP, with at least half going to build the wall for 10 years, in conjunction with the United States. Increase the military strength on the Mexico side
to reduce illegals. Round up all the illegals in the country and return them to their home country, if necessary.
3. Strengthen the southern border to stop the flow of illegals coming into Mexico with a dramatically increased physical presence on the southern border.
“Mr. President, what do you choose?”
Perkins Twist: I think it is telling that only .6% of the Mexican GDP is spent on their military. This may well be a result of the influence of drug cartels on previous governments to keep the border open. The question is does President Obrador have the courage to fight both illegals and the cartels, and in turn make Mexico and America safer countries. Imagine if what I suggest does happen and that Mexico will pay for building the wall. Trump wins again.