President Trump’s administration is exploring the option of levying a tax on U.S. imports from Mexico. White House Press Secretary Sean Spicer told reporters Thursday that the tax could be as high as 20%. Such a hefty burden could impact United States' trade with its third-largest trade partner, which exports everything from cars to televisions, fresh fruits to beer, and crude oil to edible oil.
U.S. Census Bureau data shows that for the first 11 months in 2016, U.S. imports from Mexico stood at $270.6 billion, down almost one percent from $273.2 billion, for the same period in 2015. Even though imports are down, they still exceed exports, leaving a trade deficit to the tune of $58.79 billion.
Below is a look at goods the U.S. imports from Mexico that could be impacted by a "border tax."
At over $68.6 billion, vehicles were almost a quarter of all goods coming into the U.S. from Mexico in 2016. This category includes $21.8-billion worth of passenger cars and $20 billion worth of vehicle parts. American automakers like General Motors (GM) and Ford (F) have plants in Mexico.
2. Electric Machinery
Nearly 21% or $57 billion of U.S. imports through November 2016 were smaller electric appliances like phones, televisions, vacuum cleaners and parts. Devices and parts used in telephony ranked the highest in this category, with an $11.8 billion import value, followed by televisions and related parts, valued at $9.7 billion.
3. Optical, Photo, Medical and Surgical Instruments
The $12.2 billion in imports under this category is not just a significant figure, but also an 8% improvement over the import figure for the same period in 2015. Instruments used in surgeries and medical procedures, at $5.37 billion, were the largest chunk of the total, whereas other instruments made up imports valued at $900 million.
4. Crude Oil
Despite being one of the largest crude oil producers in the world, U.S. consumption exceeds domestic production. As of November 2016, the crude oil import figure from Mexico stood at $6.9 billion.
5. Fresh Veggies
Mexico is the biggest source of all agricultural imports for the U.S. Last year, the U.S. brought in $5 billion worth of vegetables through November, an increase of a little over 4% as compared to the entire year of 2015. Tomatoes, onions and bell peppers are popular vegetable imports from Mexico.
6. Fresh Fruits
The U.S. imported over $1.5-billion worth of avocados, amounting to nearly one-third of the $4.5 billion total fruit import figure through November 2016. This figure was higher than the full-year fruit import total for 2015 by close to 2.2%.
7. Wine and Beer
Mexico is famous for its tequila but the U.S. imported nearly $2.9-billion worth of beer from its neighbor in the first eleven months of last year, a 3.7% increase from the $2.7 billion import for the whole of 2015.
How will a border tax impact trade?
Opponents of the tax believe producers of goods on the other side are unlikely to absorb the additional tax themselves, and simply pass it on to the consumers making these goods more expensive.
Those in favor of the tax believe in the short-term protectionist incentives for domestic industry and suggest currency adjustments by way of a stronger dollar would eventually net out any cost disadvantage to importers. But there is some skepticism among experts on the extent the dollar can appreciate. “I'm not of the view that import prices would go up 10 percent, the dollar would appreciate by exactly 10 percent, so that the value that retailers pay for imported goods would be exactly the same in dollar terms,” said New York Federal Reserve President William Dudley, at a meeting of the National Retail Federation, according to CNBC.
Given the lack of firm plans from the administration, the concept of the border tax has raised many questions. Will it be a tariff on imports or a more nuanced border-adjustment tax? How will it sit with trade rules negotiated under WTO and NAFTA? Will the tax protect domestic industry or will it merely assist reallocation of U.S. imports from another country? The impact on trade will depend on how these factors affect variables such as inflation, currency and jobs.