Economic research illustrates how tariffs on Mexican imports hit US companies.
The United States imported more than $345 billion in goods from Mexico last year, and shipped $265 billion the other way. So - an $80 billion trade deficit, huh? Bad for the US. Good for Mexico. Got to even that up, right?
Actually... No.
Those numbers understate the interdependence of the supply chains of the two countries. American refiners process crude oil from Mexico, then sell it back as petrol, for instance. Automakers ship parts back and forth repeatedly during manufacturing. About 30 percent of the content of Mexican exports originated in the United States, according to a recent study (https://www.nber.org/papers/w25868).
So each transaction that goes back and forth over the borders adds value, and creates wealth for both countries. But if you add a tariff to each transaction in complex, cross-border supply chains, a 5% tariff could end up in a 30% increase in cost. The consumer will opt for a cheaper item not made with a US-Mexico supply chain.
So a small tariff could result in a massive reduction in wealth created by US and Mexican companies.
