The Economic Cost of Proposed 5% Tariffs on Imports from Mexico

Published on June 03, 2019
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President Trump has stated that he will impose a 5% tariff on all goods from Mexico on June 10 if Mexico does not take action to slow the volume of immigrants at the US border. The Perryman Group, an economic analysis firm based in Texas, analyzed the economic implications of such a tariff and found that it would likely cost hundreds of thousands of US jobs if enacted and maintained.

"Mexico has long been a top trading partner for the United States. In fact, Mexico recently passed China to become the largest, due in part to trade issues with China which have reduced the volume of US-China trade," said Dr. M. Ray Perryman, President and CEO of The Perryman Group. "To impose a tariff on all goods from our largest trading partner will cause significant cost increases and other harms to the economy."

A 5% tariff on all imports coming to the US from Mexico would likely cause costs to US consumers and businesses to rise substantially. People and firms in the US would pay more for Mexican goods because while tariffs are collected at the border, they are largely passed on to consumers and producers. The payments would be made in the US, but a certain portion would likely be absorbed by offsetting price reductions in response to market conditions.

After adjusting for likely price responses across the spectrum of goods the US imports from Mexico, The Perryman Group estimates that the proposed tariffs would lead to an increase in direct costs of about $28.1 billion each year, and when multiplier effects are considered, the net losses to the US economy include an estimated $41.5 billion in gross domestic product and $24.6 billion in income each year. The overall job loss would be about 406,000.

Texas would bear the lion's share of this loss given the extensive commerce that occurs between the state and Mexico. The Perryman Group estimates that the proposed 5% tariff would result in additional direct costs of $8.7 billion. When multiplier effects are considered, these higher costs would likely cause losses to the Texas economy including almost $11.9 billion in gross product and nearly $7.1 billion in income each year as well as 117,335 jobs.

"Much is at stake for both nations," said Dr. Perryman, "and if Mexico retaliates and imposes tariffs on the US or the tariffs go higher than 5%, the negative effects on the economy would be even greater."

The potential economic harm from tariffs on imports from Mexico totals tens of billions in gross product and hundreds of thousands of jobs, and the fallout could be much greater over time.

For more details please refer to the full report.