Mexico, one of US’s largest countries for imported goods, can soon require a 20% trade tariff
Let’s list the ingredients for guacamole. It contains salt, lime juice, red onions, peppers, cilantro and most importantly, avocados. Believe it or not, 2/3 of these ingredients are imported from Mexico. In fact, in 2014, the U.S. supplied a total of $1.45 trillion of exported goods while $2.19 trillion of imported goods were supplied into the U.S. Since the U.S. heavily relies on its imports, how would a 20 percent tax on imported goods benefit the economy?
President Trump plans to impose a 20 percent tax on imported goods, and this tax will most likely start with Mexico. It will raise the prices of common imported goods while U.S. foods and products may be relatively cheaper. More specifically, avocados would have a slight increase in their price since they are mainly imported from Mexico. The tax would not necessarily be a 20 percent increase of the price at the retail store, because it would be a dutiable value. This means that avocados would only be taxed at the wholesale price when they are crossing the border. Wholesalers tend to price their avocados at a lower price than retail stores, allowing retailers to make a profit as they sell at higher prices than the wholesale.
None of the retail utilities and staff would be affected, but this will influence the retail price just slightly since the wholesalers have to put the 20 percent tax on their avocados, increasing their price up to 20 percent. In return, the retailers will have to buy at this price and sell at higher prices than normal in order to provide sufficient profits.
Although this is only about 10 cents more at the retail price from a 20 percent tax at the wholesale, Mexico remains our best producers for avocados and several other goods. American farmers cannot produce avocados as efficiently as Mexico, because avocado trees grow relatively quicker in Mexico’s environment.
Currently, the majority of onions are grown in the U.S., which requires most farmers to owe corporate tax. However, the planned border tax should reduce the corporate profits tax because this border tax is supposed to produce enough revenue to compensate the losses when lowering the tax on corporate profits. This plan’s intentions claim to open more U.S. jobs when companies produce their goods in the country allowing to pay lower taxes and have extra revenue to hire more workers.
While the debate is left unanswered, this 20 percent tax on imported goods may or may not expand the market globally. Imposing taxes on imports can create jobs in the U.S., but can consumers sacrifice slightly higher prices of goods? The greater whole of the community needs to contribute to create a long-term benefit of higher employment rates, and once again, President Trump is deciding to take this action.