More than 400,000 U.S. jobs will be lost according to a new study that examined the ramifications of a 5% tariff on goods from Mexico.
The Perryman Group’s The Economic Cost of Proposed Tariffs on Imports from Mexico looks at the impact of such a tariff on both countries.
“Much is at stake for both nations and if Mexico retaliates and imposes tariffs on the U.S. or the tariffs go higher than 5% the negative effects on the economy would be even greater,” stated M. Ray Perryman, president and CEO of the Perryman Group, in the report.
The Texas-based economic analysis firm claims the proposed tariffs would lead to an increase in direct costs of about $28.1 billion each year, and when multiplier effects are considered, the net losses to the U.S. economy will be an estimated $41.5 billion in gross domestic product and $24.6 billion in income each year. The overall job loss would be about 406,000.
“Mexico has long been a top trading partner for the United States. In fact, Mexico recently passed China to become the largest, due in part to trade issues with China which have reduced the volume of US-China trade,” stated Perryman. “To impose a tariff on all goods from our largest trading partner will cause significant cost increases and other harms to the economy.”
U.S. exports to Mexico totaled $64 billion, while imports were $86.6 billion.
While costs incurred by the tariffs will affect consumers and supply chains across the U.S., Texas will bear the lion’s share of the burden.
“Mexico is Texas’ largest export market by a substantial margin, accounting for 35% of exports from the state in 2018. The Perryman Group estimates that the proposed 5% tariff would result in additional direct costs of $8.7 billion. When multiplier effects are considered, these higher costs would likely cause losses to the Texas economy including almost $11.9 billion in gross product and nearly $7.1 billion in income each year as well as 117,335 jobs,” stated the report, noting things could get worse if Mexico retaliates with its own tariffs.
The report concludes by stating free trade is beneficial, which is supported by “basic economic theory and centuries of evidence.”
U.S. President Donald Trump has also threatened to impose 25% tariffs on auto parts from Mexico. Should these tariffs come to fruition, Deutsche Bank estimates the cost of automobiles in the U.S. will increase by an average of $1,300.