Memo to America: Tariffs on Mexico won't raise consumer prices
Our Buy American Mention of the Week!
by Roger Simmermaker
February 18, 2017
Every day it seems, someone somewhere, whether it's in the Wall Street Journal, Automotive News, or Bloomberg Businessweek (all of which I subscribe to) is saying that if we were to raise tariffs on imports from Mexico that it would automatically result in higher prices on all products for all American consumers. Few things could be further from the truth.
A tariff is a discretionary tax. If a consumer buys the imported product that is subject to the tariff, the consumer might pay the tax or tariff (if the producer adds the cost to the purchase price). If the consumer buys an American-made alternative (which is usually in no short supply) the consumer does not pay a tax or tariff.
Perhaps Abraham Lincoln said it best: "And again, by the tariff system, the whole revenue is paid by the consumers of foreign goods... By this system, the man who contents himself to live upon the products of his own country, pays nothing at all. And surely, that country is extensive enough, and its products abundant and varied enough, to answer all the real wants of its people."
The real life examples of today suggest that many producers would simply eat the tariff and not raise prices on imports at all.
Irish Spring, for example, makes several types of body wash, including an American-made version that I like and use. Irish Spring (owned by U.S.-based Colgate-Palmolive) also makes certain varieties of body wash in Mexico. Guess what? All of the body wash varieties sold by Irish Spring cost exactly the same in my local supermarket, priced at $4.99 each, whether they are made in America or made in Mexico. This is despite the fact that Mexican wages are a mere one-eighth of American wages.
Clearly, Colgate has been pocketing the extra profits from the more cheaply-produced body wash they are making in Mexico instead of passing the cost savings on to you - the consumer.
Are the varieties of Softsoap made in Mexico cheaper for the American consumer than the ones made in the USA? No. Why are Hallmark greeting cards made in America often less expensive than the ones made in China? Why can I find combs made in USA at my wife's favorite beauty supply store that are cheaper than the ones made in China?
There are numerous other examples, and they aren't all inexpensive products found at grocery stores. Do you think the Mexican-made Toyota Tacoma is less expensive on the auto dealer lot than the Toyota Tacoma made in America? Of course not.
The point is that not only will tariffs on Mexican imports raise prices for most consumer products, but also that it is already cheaper to 'Buy American' in many cases.
Again, here is the wisdom of Abraham Lincoln: "The tariff is the cheaper system...while by the direct tax system, the land must be literally covered with assessors and collectors, going forth like swarms of Egyptian locusts..."
With import tariffs, companies and corporations are encouraged to stay in or relocate to America, providing American jobs for American workers, who are the only ones who pay taxes to the U.S. Treasury. We have already seen companies like Ford and Carrier adjust plans to move to Mexico at the mere floating of the idea of an import tariff. BMW is now discussing shifting work from Germany to the U.S. if tariffs are implemented. Toyota CEO Akio Toyoda, says Toyota will adjust if the rules of trade evolve - an obvious recognition of U.S. sovereignty.
Free traders and most multinational corporations don't like protectionism and import tariffs. Why? Because it's in their economic interest to have goods imported as cheaply as possible. They don't care that workers in foreign countries don't pay taxes to America to support the benefits they want and enjoy themselves like an educated citizenry, Social Security, Medicare, national defense, space exploration, fire and police protection, easy access to our courts and legal system, or adequate infrastructure like roads, highways, parks, bridges, airports, dams, and water systems.
No, free traders don't want American workers - the only workers who pay taxes to and for America - to make the products they might buy because they might be paid higher wages and just might occasionally command a higher price for those products.
But they do want the workers employed by companies that they feel are na?ve enough to stay and produce in America to pay taxes for all those benefits they receive and enjoy. They just don't want to pay for them. They want the benefits of the greatest country on earth and her high living standards at no cost to them. I guess some people think there is still such a thing as a free lunch.
In the minds of free traders, American workers are labor cost problems to be dealt with, rather than contributors to a first world economy with high living standards.
Import tariffs are a far better way to collect national revenue than direct taxes on the American people that everyone will pay. Congressional leaders are already floating the idea of raising the gas tax to pay for infrastructure projects, which everyone will pay for, unless your sole mode of transportation is a bicycle.
Protective tariffs are nothing new. From 1789 to 1913, import tariffs comprised between 50% and 90% of all U.S. federal revenue.
Americans are finally learning the free trade doesn't work, and it is nothing more than a horrible, failed attempt to create national prosperity on the cheap. Auto workers in Mexico largely still can't buy what they build with wages that can't crack $30 a day. In the United States, Median household income declined 1 percent between 2005 and 2015 while the average price for a new vehicle shot up 21 percent, according to Edmunds.
Free trade economists are having a severe identity crisis with many questioning what their place is in the world going forward as public support for free trade and globalization continues to dwindle.
America needs to return to what was once called the 'American System' of protective tariffs to promote American industry and turn away from free trade once and for all.