Trump’s Mexico tariffs don’t make sense, but Americans will pay a steep price anyway if they go into effect

The Trump administration says it intends to slap a 5% tariff on every medium-sized car, avocado and other Mexican import beginning June 10 – all almost US$1 billion worth that crosses the border into the U.S. each day on average.

The president is using the policy as a cudgel to compel Mexico to do more to stem the flow of migrants into the U.S. and says he’ll increase the tariff if things don’t improve. As a scholar who studies trade policy, I have a hard time agreeing with the president’s strategy that tariffs can be used as a stick to pressure another country to do whatever he wants.

More than that, Americans will pay the price – as they have with Trump’s U.S.-China trade war.

Driving up costs to consumers and businesses

Tariffs, which are a tax imposed on imports paid by consumers in the recipient country, are typically used as a protectionist measure.

That is, governments use them to promote domestic goods in the face of global competition. For instance, if a domestically made item costs less than a foreign made item – due to tariffs increasing the price – trade scholars would expect a consumer to choose the less expensive, domestic item.

This would make sense in an economy where consumers have actual choices about whether to buy a foreign or domestic product. However, due to the evolving global economy, most consumer goods are made abroad or contain foreign parts. All “U.S.-made” cars, for examples, contain foreign parts. And my research has shown that it is not easy to understand how “foreign” a product is.

One good example is avocados. Mexico produces 11 for every 1 grown in California, and demand is unlikely to diminish for avocado toasts and guacamole, so Americans will simply have to pay more.