Earlier this week, when President Trump was asked by ABC's David Muir whether or not American taxpayers would be forced to cover the cost of his Mexican border wall, the President enigmatically stated, "There will be a payment. It will be in a form, perhaps a complicated form."
Yesterday, as Mexican President Enrique Pena Nieto canceled his first meeting with President Trump, White House Press Secretary Sean Spicer revealed what that "complicated form" of payment could very likely be. "When you look at the plan that's taking shape now, using comprehensive tax reform as a means to tax imports from countries that we have a trade deficit from, like Mexico, if you tax that $50 billion at 20 percent of imports," Spicer told press aboard Air Force One, "by doing that we can do $10 billion a year and easily pay for the wall just through that mechanism alone."
That's all well and good—ensuing trade war and violation of NAFTA aside—except that a 20 percent tariff on Mexican imports would likely result in significantly higher costs for American goods and services that heavily rely on Mexican imports. And there are many.
If you now pay $1.10 at the supermarket for an avocado imported from Mexico now—which is a relatively low estimate compared to what people pay in some parts of the country—you could soon be paying $1.32. So, even when Trump's administration floats a plan to ensure that Americans don't pay for his "powerful, beautiful, southern border wall," we'll still end up paying for it indirectly.
In fact, the place many Americans could feel the most pain just might be the supermarket. Not only does America's largest trade partner for fruits and vegetables happen to be Mexico, but our southern neighbor is also the second-largest trading partner for all food products imported into the US. According to the USDA, Mexico exported $21 billion of food and beverages to America in 2015 alone.
Americans are able to eat seasonal fruits and vegetables year-round largely because we import a great deal from other countries. In fact, imported tomatoes now account for 20 percent of all tomatoes eaten in the US, 95 percent of which happen to come from Mexico. Similarly, the US imported 154 million pounds of watermelon in 2016, roughly 54 percent of which came from Mexico.
To give you another example as to how a 20 percent tariff on Mexican imports would only serve to punish the American consumer, consider that just the state of Texas alone imported more than $84 billion of Mexican goods in 2015. If the tax were to actually go ahead, Texans would be forced to pay an extra $16.8 billion for the exact same goods.
Simply put, any policy proposal which drives up costs of Corona, tequila, or margaritas is a big-time bad idea. Mucho Sad. (2)
— Lindsey Graham (@LindseyGrahamSC) January 26, 2017
Republican Senator Lindsey Graham pointed out on Twitter that a 20 percent tariff would also dramatically increase the cost of tequila and Mexican beers like Corona. From 2010 to 2014, the US imported roughly 26 million gallons of tequila each year, over half of which came from Mexico. Mexico also exports more wine and beer to the US than any other country, roughly $2.7 billion worth. Mexico's largest competitor in the category, Italy, falls around $1 billion behind them.
William Gale, the co-director at the Tax Policy Center, believes that even though a stronger dollar could help to minimize the pain inflicted upon Americans, "the irony of putting a tariff on Mexican goods is that, to the extent it raises consumer prices in the US, consumers will be paying for the wall, not Mexican producers.''
And if you thought that a 20 percent tariff on Mexican goods would only negatively affect Mexican businesses and American consumers, guess again. El Poder del Consumidor, a Mexican consumer advocacy group that focuses on food and drinks, has now begun to call on Mexicans to "consume products made in country…Use your buying power to punish the companies that favor the politics of the new US government." One of the most heavily trending hashtags in Mexico currently is #AdiosStarbucks.
— Sin Embargo (@SinEmbargoMX) January 25, 2017
All in all, a tariff on imported Mexican goods could have a devastating effect on America's ability to feed itself—and on American food businesses that hope to continue selling goods in Mexico.
If you don't like that guacamole is extra, you might find that the struggle gets even more real in the coming years.