One of then candidate Trump's biggest pledges was to take on Mexico on many fronts, and for many purposes. Within his first two weeks in office he has put the wheels in motion to do just that, and in a number of ways. Trump has floated the idea of a 20% tax on imported goods, is pushing to "build that wall" even though it looks like it will amount to a huge bill for the American tax payers to pick up, and has done more to damage diplomatic relations with our southern neighbor than at any time since we were actively trying to take over their territory.
As Mark Cuban says here, much of the Trump Administration's apparent "strategy" would amount to high costs being passed on to the American consumer. Furthermore, team Trump is blatantly moving forward with an aggressive agenda centered on tax cuts and spending increases, a plan which is poised to make the budget deficits of the Bush 43 and Obama years look like child's play at best. While the short term ramifications of that approach would almost assuredly lead to increased jobs, wages, and buying power, the long term outcomes would be higher inflation, higher national debt, and more economic weakness within the country.
At a time when the Trump team is silencing the executive branch from speaking outwardly, and when prominent GOP Senators are reporting they are unable to get answers themselves, citizens who are trying to stay informed are more and more realizing that they are having to read the tea leaves. For all of the seemingly positive movement of the Dow going up, and of Carrier and Ford keeping jobs here, there has been little substantive good news on the business front in the first two plus weeks of this Administration. In fact, the more controversial of Trump's moves have led to backlash from business leaders. While some analysis can show a bit of logic to what Trump's team is trying, it is hard to see a clear picture at this time.
For example, consider what might happen if Trump rips up NAFTA, puts a border tariff in place, and starts building the wall which would be pointless in many areas. We know that companies have pulled planned factories from Mexico already; it is easy to imagine that other factories which are already operating south of the border would board up relatively quickly in this scenario. Those businesses would either A) cease to exist, or B) come back to the US. Great, right? Well, take the future of small cars if all car manufacturing comes back to the US. It's highly unlikely that Ford would invest in plants in the US to build the Ford Focus, given the limited profit margins in that product. Cheap labor makes it possible; expensive labor makes it less attractive or even feasible.
From there it isn't hard to see additional fall out: less selection on the market makes cars more expensive. More cars are big gas guzzlers, which have much larger profit margins, making our dependence on oil greater. Prices very well could go up there as well. More oil usage impacts the environment negatively. It makes US involvement in war in the Middle East much more likely moving forward. But let's say it goes the other way and the car industry determines that we still need those small cars. What is more likely is that they will invest heavily in technology infrastructure to eliminate the reliance on cheap labor by replacing it with robots and computers. That also doesn't help create jobs, at least not the blue collar jobs that Trump promises.
Then there is the impact on our friends to the south in Mexico. Who cares, right? Well, consider the impact that losing those jobs might have. People need to have money, and without jobs they are left with two real options: join cartels and gangs to get money illegally, or illegally get into the USA to work off the books at a lower wage. One option increases the drug flow and violence, the other increases illegal immigration. So we have to fight increases in those things, which leads to even further increased government spending on DEA agents, border agents, and maintenance work to repair and maintain whatever border defenses you have (which are, inevitably, damaged with frequency). And all of this is to say nothing of the increased issues in human rights, quality of life, and other moral and ethical things that could happen in Mexico in this scenario.
All of this is to say that it is highly unlikely that President Trump's stated fantasy of pulling out of NAFTA, implementing a draconian tariff, and building a wall will lead to increased jobs, wages, and security in the USA. Quite the opposite, his concoction of isolationism, xenophobia, and pre-World War II economic policies would likely contribute to raising inflation, wage stagnation, and a functional loss in jobs. I didn't even get into the damage to the Texas economy if NAFTA is killed, among a myriad of other issues if this course of action is taken. The overarching danger, of course, is that in the short term some of his policies could lead to increased wages, increased jobs, and so people won't think of the long term ramifications of the policy. Accordingly, it is very crucial that we pay close attention to the policy as well as the short and long term outcomes which are probable. After all, if President Trump truly wanted to hit the Mexican cartels where it hurts, as he's claimed before, he might give greater consideration to legalizing marijuana.
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