Donald Trump’s Border Tax Won’t Spell the End of Cheap Burritos. Here’s What to Really Worry About
If President Donald Trump does introduce a 20% import tax on Mexican goods, as his spokesman Sean Spicer threatened yesterday, burrito lovers likely will see little change in their lunch bill. But if you are planning to buy a car in the next four years, Trump’s tax proposal will likely hit you.
Late Thursday, White House Spokesman Sean Spicer late Thursday partially walked back the tax threat. But Trump continued Friday morning with his threats against Mexico, following a sharp escalation in tension between Trump and his Mexican counterpart Enrique Peña Nieto over a promised border wall.
There’s been a lot of worry about what that may mean for avocados, and by extension burritos. Chipotle’s stock was down $5 on Friday to under $414. But the truth is food and drink products are likely to be well down the list when it comes to drawing up sanctions. And Spicer hinted that if Trump goes down the tariff route, the taxes imposed on imports would be targeted.
President Trump ‘s real focus is on the deficit in manufactured goods, particularly the auto industry, as his pressure on Ford Motor, General Motors and even Germany’s BMW has made clear. Vehicles alone (at $74 billion) accounted for more than three times the entire food and drink import bill from Mexico in 2015. Other big import categories were electrical machinery ($63 billion), other machinery ($43 billion) and optical and medical equipment ($12 billion). This excellent graphic of Mexico’s foreign trade makes it clear where the shoe would pinch most.
Sure, America’s trade in food with Mexico is big enough for tariffs to be painful south of the border. So if Trump was just looking to put pressure on the Mexican economy, and extract pain from Mexican officials, he could include food in his tariff trap. Mexico sold the U.S. $21 billion in food and drink in 2015, according the U.S. Trade Representative’s office. A 20% import tax, if applied across the board, would imply a check north of $4 billion on everything from chillis and avocados to Corona and Dos Esquis beer.
The biggest portion of those imports was fresh vegetables, of which the U.S. imported $4.84 billion in 2015. That’s over four times what we imported from Canada, the No. 2 source of vegetables. Likewise, we imported more than twice as much in fresh fruit from Mexico—$4.28 billion—as from the No. 2 supplier, Chile.
If you like a beer to wash down your tacos, the numbers don’t get much better. The U.S. bought $2.7 billion worth of that in 2015. Imports of hard liquor (tequila, mainly) also run at well over $1 billion a year, and the snack and confectionary industries would also suffer, given that sugar (both raw and refined) and chocolate also figure among the bigger imports by value.
But if all the President wants to do is raise $12 billion to build a border wall, there’s no need to raise one-third of that from a sector that only accounts for 7% of imports (the argument still holds even if you use private-sector estimates of $15-$25 billion for the wall’s cost).
Moreover, the U.S.’s agricultural trade with Mexico is largely balanced, and only the collapse of grain and oilseed prices since 2014 has tipped it into a small deficit. Lastly, trade tariffs and sanctions typically invite tit-for-tat retaliation, and Mexico could very easily target largely Trump-supporting mid-western and Floridan farmers in return.
That’s not to say burrito inflation due to import tariffs is impossible if the dispute over the border wall broadens out into a fully-fledged trade war. But at least for now, prices for table side guacamole at Chillis are probably safe.