Why the 20% Tariff on Mexican Goods Could be an American Economic Disaster

In any basic Economics class on Trade, I ask my students why they don't raise their own sheep, harvest the wool, process it into yarn, and make their own clothes. I ask why they don't set up a greenhouse, grow their own coffee beans, and roast their own coffee. I ask why they don't chop down their own tree, mill it with the appropriate tools, and make their own door molding instead of running down to Home Depot.

Intuitively, students understand how ridiculous this is. They conclude that while they could, if absolutely necessary, do these things, it is highly inefficient. The time and effort needed to undertake these actions means would require so much of their effort that they would have to give up engaging in other activities - such as washing their clothes, going to work, or studying for school. They understand quite easily that it makes far more sense to do what they do best - wait tables, work at a retail store, stock items in a warehouse - and then use the fruit of their labor to purchase those goods they do not or can not make as efficiently (such as a T-shirt, a can of coffee, or a piece of lumber.)

That, of course, is the basis of trade: nations do what they do best, and trade for those items that others produce more efficiently.

Mexico is the United States' third largest trading partners. In spite of the social media comments by those who insist they don't buy Mexican goods anyway, we import - quite cost-effectively - billions of dollars of goods from Mexico annually. Beer. Washing Machines. Chevy and Dodge Trucks. Medical Equipment. The United States imports a total of about $295 billion per year from Mexico, including $74 billion worth of vehicles, $63 billion of electrical machinery, $49 billion in machinery and $21 billion in agricultural products. Mexico is the second-largest supplier of agricultural imports to the United States: tomatoes, limes, lettuce, avocados, and more.

Trump's current proposal is to pay for his wall with a 20% import tariff on Mexican goods. Applying this 20% tax to $295 billion worth of imports would result in an increase in prices to the tune of almost 60 Billion dollars annually.

How would this affect Americans?

Well, once again, let's break this down into understandable personal transactions.

Let's say that I have $100 in my pocket. I go to the store to purchase a tricycle for my child, and it costs $50. I can buy this tricycle for $50, and still have another $50 left in my pocket to spend elsewhere - a pizza for the family for dinner, a bouquet of flowers for someone on their birthday, and one or two new pair of blue jeans.

Now let's say that tricycle was made in Mexico, and now there is a 20% tax on top of that price. Instead of $50, that tricycle now costs me $60, and I purchase it. But wait, now I only have $40 left in my pocket instead of $50 - in other words, i have $10 less in disposable income than I had before.

Who loses? I have to give up some other purchase: either the pizza, or the flowers, or one of the pair of jeans. Some American business must lose out, because I no longer have the ability to purchase the same number of goods I could before.

Now multiply this times all the consumers in the American economy. With the tax, $60 Billion dollars less is available for spending in American businesses.

But it gets worse.

Let's say that, due to this new tax and my lower disposable income as a result, that I decided to skip buying the flowers at the local florist. If I *had* purchased those flowers, the ten dollar bill would not have sat in a cash register: the Florist may have used some of that to buy ribbon from a ribbon manufacturer, or to buy some vases in which to display flowers, or to pay their delivery man. And of course, that delivery man would then have used that income to purchase something for himself - perhaps a new windshield wiper, or a baseball for his child, or a ticket to a local performance.

And since I couldn't buy those flowers, none of those transactions took place.

And now, multiply that by $60 billion dollars which will no longer multiply throughout the economy.

The 20% tariff may be a great way for the President to buy political capital and 'pretend' that Mexico is paying for his wall...but the reality is that Americans will pay - over and over - as the economy takes a hit it can not afford to take.

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Thomas Simmons is a graduate of Hofstra University and Hofstra Law School, and has worked as an Economist for the last 30 years. He is the author of three college textbooks on Economics.

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36 States: 3rd Parties Polling Greater than Margin Between GOP and Dems

But...but.....a Third Party Vote is a wasted Vote! How many times have you heard that plaintive cry during the 2016 election season? Or the usual follow-ups: "A vote for Johnson (or Stein) is a vote for (Fill-in-the-Blank: Trump or Hillary!)"

It seems that every strong Clinton supporter, and every strong Trump supporter (or, perhaps more accurately, every Anti-Clinton Voter and every Anti-Trump Voter) has been working overtime in the mainstream media and on social media to convince people not to vote for a third party in 2016. "After all, they won't win...and that will only help Candidate X win," they say. They don't seem to understand that even if there were no third parties, I would not vote for either Clinton or Trump.

And to be honest, many of them try to give me constructive advice: "Please, this is a two-party nation, and only one of the two major party candidates can win. Why don't you work within one of the major parties to make effective change instead?," they plead.

Because history has shown that won't work.

There are only two factors that motivate party policy.

The first is money. And sorry, I don't have enough to influence either party in that respect.

The second is votes - and more important, winning elections.

When they win, they assume they touched on the right issues in the right way, and ran their ground games in an effective and successful way. If what you want is more of the exact same nonsense that both major parties have handed out, then by all means, vote for a major party. They will assume that their win means they did everything correctly, and you can expect more of the same in the years to come.

When they lose, they must admit that they did something wrong, and begin the process of looking at polls and votes and voter turnout rates to see where they lost ground.

Want to send a message to the major parties to make them seriously examine what they have done this election cycle? FORCE THEM TO RE-EVALUATE WHAT THEY'VE DONE.

It is a Media cliché at this point to speak of 'blue states' and 'red states' and 'battleground states.' But the number of states on the edge is far bigger than anyone could imagine this year.

This year, in 36 states, polls show that the combined support for Libertarian Gary Johnson and Green Party candidate Jill Green exceeds the margin of difference between the Republicans and Democrats. These states represent 358 Electoral votes: far more than the 270 needed to win.

The table below indicates the margin of difference between Clinton and Trump, and the combined 3rd Party support, as published by the Washington Post 50-state poll on September 6:

*Maine and Nebraska assign their electoral votes by Congressional District, increasing the volatility of the election in these states.

And, to further drive home the point, here is a map (courtesy of 270towin.com). Red states are runaway Trump, Blue states are runaway Clinton, and the Grey states represent those states where the 3rd Party support now exceeds the difference between them:

So there you have it.

Are the chances slim that a 3rd Party candidate will win the election outright? Yes.

Are the chances large that the 3rd Party vote might tip an election in some of these state one way or another? Yes.

Are the chances even larger that a party that loses a state - or even comes close to losing - will need to examine what they're doing wrong? ENORMOUS.

No, your vote for a Third Party is not a wasted vote; rather, it is the most significant way you have demanding change in the system.