Since the introduction of NAFTA in 1994, U.S. imports of goods from Mexico have increased significantly with the only drops occurring in correlation with the Great Recession around 2008. The Trump administration has centered economic rhetoric on removing NAFTA, and instead suggests implementing a tariff to protect domestic industries at home by lowering intention for relocations.
However, removing NAFTA would produce no benefit for the average American consumer for numerous reasons. First, trade between Canada, the U.S., and Mexico would be subject to the World Trade Organization’s tariff limits. Currently these are less than 3.5% for Mexico and around 7% for the U.S. American businesses would rather pay the tariff and relocate as doing so would still be cheaper than remaining in the U.S. considering that Mexican workers are on average $20,000 cheaper than their American counterparts.
How do the tariffs effect the average American consumer? How would relocation to Mexico make sense as far as comparative advantage and production are concerned? What does the increase in Mexican imports say about the American economy? Do imports help the economy? And if they do, then why is Trump trying to minimize them? Is it fair that companies can move to Mexico for the cheap labor?
Source: Bloomberg on Mexican wages
Sofia G. Cuadra, Kiely Hartigan, Annie Lentz