Tariff threat against Mexico could lead to higher prices for Oklahomans

If and when President Trump carries out his threat to increase tariffs on goods imported from Mexico, it’s likely every consumer in Oklahoma and across the nation will feel the impact.

Dr. Steven C. Agee, Dean and Professor of Economics at the Meinders School of Business at Oklahoma City University is among those who makes the prediction.

“Bottom line,” he told OK Energy Today, “there is a high probability that U.S. consumers will pay a higher price for goods imported from Mexico and China. Since the tariff covers all goods imported, the impact could be on all goods.”

Mexico has moved past Canada and China in the first three months of the year to become the United States’ largest trading partner. The trading has reached $50 billion in imports and exports so far this year.

“Five percent may not be a material additional burden to pay for most goods,” added Agee. “However, if this ratchets up by 5% every month until the total tariff reaches 25% as the President as asserted, a tax of that magnitude would be material.”

It’s not just avocados, beer and cucumbers the U.S. imports from Mexico but there are automobiles, trucks, machinery, fuel and medical devices.

“This is going to be felt by every sector and it’s going to be felt by consumers. Not just by businesses. Not just the auto industry. It’s going to be felt more widely and deeply than previous tariffs were felt,” said Neil Bradley, chief policy officer for the US Chamber of Commerce.

Dr. Agee explains that the U.S. Customs and Border Protection monitors the tariffs and requires importers to pay duties within 10 days of shipments clearing customs. The tariffs are paid by the importing companies and it is their responsibility to check the tariffs, calculate what is due and pay it.

The Customs and Border Patrol, according to Dr. Agee reviews the payments and issues an invoice to the U.S. company importing the goods, if there is an underpayment.

But the question is whether companies will pass the tariffs along to consumers.

“Some of them do, so it is the case that Chinese or Mexican companies may pay some of the cost,” said Agee. “However, an importing company can manage the cost of these tariffs in different ways.”

The companies can pay the full cost and live with a lower profit margin or they can cut costs to offset the higher tariffs. Dr. Agee said the companies can also ask suppliers in Mexico and China for a discount to help offset the tariffs, or they can find alternative suppliers from outside Mexico and China.

Or, the companies can simply pass the tariff costs on to customers by increasing retail prices.

As for his personal thoughts about the President threatening increased tariffs on Mexico in order to resolve the problem of illegal immigrants at the border, Dr. Agee disagrees.

“In my opinion, for the President to tie immigration issues to the imposition of (a) tariff is a misuse of the presidential authority to impose tariffs,” he said. “Border security and trade policy are separate issues.”