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Updated Jan 26, 2017, 9:53 pm Originally posted Jan 26, 2017, 8:46 pm
President Donald Trump's proposal for a 20 percent tax on imports from Mexico would be a "disaster" that could lead to higher food and other prices and lost jobs in Arizona and trigger a trade war, according to economic development and political leaders.
Trump on Thursday proposed a 20 percent tariff on imports from Mexico to pay for a wall along the southern border. And many of Arizona's imports are manufacturing parts and agricultural products. More than 110,000 jobs in Arizona depend on bilateral trade with Mexico, U.S. Sen. John McCain said.
"It's a disaster because that ends up not with Mexico paying for anything. It ends up with (Arizona and American) consumers paying for stuff, "said Doug Bruhnke, executive director of Global Chamber Tucson and Global Chamber Phoenix.
White House press secretary Sean Spicer announced Thursday that Trump wants the new tariff, but Spicer backtracked later in the day, saying that the tax was just one option as part of a broader overhaul that needs to go through Congress.
Mexico is Arizona's number one trading partner, for imports and exports, according to the University of Arizona's Eller College of Management. And about 111,200 Arizona jobs directly depend on bilateral trade with Mexico, according to a statement Thursday from McCain.
Arizona's southern neighbor accounts for 37 percent of all Arizona imports from foreign markets, or about $7.64 billion in 2015. And Mexico received about 30 percent of all Arizona exports, or $9.16 billion in 2015.
"Retreating from NAFTA and other international trade agreements will harm our ability to compete in today’s global economy, raise costs for consumers, threaten jobs, and undermine our relations with our closest neighbors," McCain said.
The head of the Tucson Hispanic Chamber of Commerce said the proposed tariff "could have serious implications to Arizona and the nation."
THCC "represents businesses that benefit directly from Mexican citizens shopping and traveling in Nogales, Tucson, Douglas and Sierra Vista. We must consider the impact and threat to our local economies – to the business owner's loss of revenues and the loss of sales tax, hotel taxes, gas taxes, etc. on tax revenues to cities, counties, Arizona and the federal government, " said the group's president, Lea Márquez-Peterson, who commented via email after returning from a business conference in Tijuana on Thursday.
"We plan to continue our advocacy to the Trump administration on building rather than diminishing the relationship with Mexico to remain globally competitive against China," said the business-group CEO, who has been a vocal supporter of Republican candidates such as Arizona Gov. Doug Ducey.
U.S. Rep. Raul Grijalva also blasted the proposal and said it would be "economically devastating" to borderland communities and could trigger a trade war.
"Trump’s first week in office has been marked by one reckless and short-sighted statement after another, and this is no exception. Not only has Trump confirmed that Mexico will not pay for the wall — every dime of this tariff will be shouldered by American consumers — but he has also just given our (nation's) third largest trading partner in the world good reason to retaliate against U.S. exports," the Tucson Democrat said. "In my home state of Arizona, cross-border commerce brings $737 million into our economy every month."
TucsonSentinel.com contacted U.S. Rep. Martha McSally for comment, but that request went unanswered by her office.
Mexico is also Arizona's number one source for imported manufacturing parts, including those for the aerospace, electronic and automotive industries, according to the UA and Bruhnke.
Adding a tax to those imports just drives up expenses for Arizona manufacturers, causing them to raise prices and become less competitive or make less money and lay off workers – or both, Bruhnke said.
"One of the great things about the U.S. and Mexico is we have created a trade zone that is competitive in the world. So a 20 percent tariff just makes the trade zone less competitive. It's a misunderstanding of trade dynamics. It raises the price of products so people can't afford them," he said.
Adding taxes to Mexican imports could trigger a trade war in which Mexico slaps a tax on Arizona exports to Mexico. That would hurt Arizona more because Arizona exports more high value goods south than it imports.
"A lot of what's coming in is agriculture and handicrafts. We sell them a lot of high-value things. That is the big danger with tariffs. Say you raise tariffs on Chinese steel. Well, the reverse, is that they are buying a lot of pretty cool products from us, high tech products, food products and things like that. You raise tariffs in one area, and you get punished in another. That's the danger if you don't know what's going on," Bruhnke said.
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The U.S. also imports many foods from Mexico, including fruits and vegetables, liquor and meat. Tacking on extra taxes for those goods would drive up food prices for individuals as well as restaurants.
Arizona restaurants and food stores are already facing the challenge of Arizona's new voter-approved minimum wage law that raised the hourly rate for workers to $10 an hour on Jan. 1. Adding the expense of higher foods from Mexico would be a double whammy.
Bruhnke has worked in the manufacturing business for 30 years, including 20 in automotive manufacturing. He originally founded a Phoenix organization called Arizona International Growth Group and two years ago founded Global Chamber, which has branches in Phoenix and Tucson. He estimates it has at least 2,000 Arizona members. It is also part of Global Chamber, which has 33,000 members worldwide, including four locations in Mexico.
The groups helps both exporters and importers and contends that zero tariffs are best.
Bruhnk said Trump's 20 percent proposal could be just a beginning-of-negotiations tactic, or bluster.
"All these dumb ideas coming out and I keep assuming they are negotiation bluster. I grew up in New York and in New York and the crazier ones (residents) use this as a negotiation tact," he said. "And (Trump) is obviously a good negotiator. But these ideas ultimately are really horrific, and they would have a terrible impact on Arizona in terms of consumer prices. Hopefully, that doesn't happen."
But Bruhnke does agree with Trump's plans to renegotiate the North American Free Trade Agreement that governs trade among the U.S., Mexico and Canada because a lot has changed since it was created in 1994. He just hopes that those who negotiate new deals know what they are doing and do it in good faith.
"Putting tariffs on anything is not smart. You don't want to go there. You always want to get tariffs to zero. That's my biggest fear at this point. It seemed like bluster a few weeks ago, and now it seems he is at the wheel of the thing. It's kind of scary.
McCain's statement said that while renegotiating NAFTA could strengthen and modernize trade relationships, he doesn't want it to hurt the "enormous economic benefits" to Arizona.
"In just two decades, Arizona's exports to Canada and Mexico have increased by $5.7 billion, or 236 percent," said the Republican senator from Arizona. "Today, international trade supports more than one-in-five jobs in Arizona, which pay roughly 18 percent higher salaries. Imports to the state have also lowered the cost of raw materials, allowing Arizona companies to remain competitive and reducing costs for Arizona consumers. Free trade stimulates economic growth, creates higher paying jobs, reduces the costs of goods and services and deepens our relationship with key allies around the world."
In recent negotiations between the U.S. and other countries, particularly those proposed – and recently killed — for Pacific countries, the U.S. has been adding protections for workers and the environment.
Bruhnke hopes that doesn't go away.
"I fear he (Trump) will just say I don't care about your labor. I don't care about your environment. I just want a better deal."
The total value of agriculture imports from Mexico to the U.S. is worth $22.5 billion, and last year, Mexico overtook Canada as the source of agriculture imports, according to the U.S. Department of Agriculture.
For instance, around 71 percent of the greenhouse tomatoes consumed in the U.S. come from Mexico, said the USDA.
However, the United States also imports vehicles, electrical machinery, and other manufactured products from Mexico, worth nearly $295 billion in 2015, according to data from the Office of the U.S. Trade Representative.
TucsonSentinel.com's original reporting and curation of border and immigration news is generously supported in part by a grant from the Ethics and Excellence in Journalism Foundation.