Mexico – USA: trade walls against consumers

Regardless what Trump says, neither the American nor the Mexican government can deter the flow of migrants from Central America

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Migrant arrives in Mexico (Photo: Flickr).

 

On Thursday, 30th May, Donald Trump announced that Washington would impose progressively increasing tariffs on all goods from Mexico unless the Mexican government successfully stops the growing number of illegal migrants entering the United States through its territory. Following this announcement, Mexico and the government of Andres Manuel Lopez Obrador found themselves in a predicament.

Trump’s announcement has shocked Mexico’s economy with a sharp depreciation of the Mexican peso and the fall of the value of the stock exchange. These changes come at a time when Lopez Obrador is already expecting poor results of the first six months of his administration. Mexico is grappling with declining investments and consumption indices, a drop in productive activity, employment levels, and the pace of public spending, the virtual beginning of a recession (the duration of which cannot be predicted for now) and uncertainty about the future of the USMCA.

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The response of Lopez Obrador’s government to Trump’s threat was hasty and improvised. The government had enough time to foresee a situation like this. However, it did not take any action. If Trump acts on his threats, the results will be detrimental to Mexico’s sluggish economy that the new government is already doing a mediocre job managing. The Lopez Obrador government will find it difficult to recover from this blow in the coming year. Mediocrity, inefficiency, unpredictability, and irresponsibility are more appropriate last names for members of the Mexican government.

Trump’s threats to build a trade wall with Mexico are simply an opportunist excuse to maintain popularity in his base. The reality is that neither the American government nor the Mexican one can suppress or deter the flow of migrants from Central America, a phenomenon that is the product of multiple factors beyond their reach. However, the Trump administration is pretending that it can tackle this crisis to aid Trump’s reelection as America is approaching presidential polls next year.

Trump does not understand how economy works. He seems to ignore that trade is the best instrument to overcome poverty. Therefore, the only long-term remedy against migration for economic reasons is trade with the Central American nations.
But if Trump is ignorant of economics, the Mexican government cannot afford equivalent ignorance in that area. Most of the Mexican politicians recommend trade retaliation and similar tariffs if the negotiations between the two governments fail and the Trump administration acts on the President’s threat. However, the appropriate response to trade wars and grievances cannot be another form of protectionism.

It is surprising that no Mexican politician or official has adopted a proactive attitude toward economic progress and openness. Instead of closing down trade, the Mexican position should be in favor of freer trade. Mexico has been a net beneficiary of free trade for the last twenty-five years, and therefore, it makes sense to open up the economy more rather than shutting it down. However, our politicians and bureaucrats are backward populists, anchored in the 20th century.

Politicians impose tariffs based on their political-economic convenience. Thus political opportunism drives their decisions. These tariffs protect inefficient sectors, interest groups, powerful allies of politicians and bureaucrats, groups that increase prices of consumer goods, create hindrances for taxpayers, and impair and lower the standard of living of families.

Tariffs take away freedom from consumers as they are forced to buy goods at prices that are effectively set by the government. Tariffs also take away money from people and transfer it to the hands of politicians. Thus, instead of imposing tariffs, governments should recognize the ability of people to exchange goods and services freely. It is the people who trade, while governments curb trade and freedoms.

Mexico’s answer to Trump should involve putting the consumer at the center of all trade policy decisions. Today, consumers are not on the radar of governments. Therefore, the Mexican response should not be to protect the producer or inefficient sectors, or give more power to politicians, but to look out for the consumer, giving people the opportunity for effective and real free trade, and thus opening up the economy.

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