Donald Trump, border taxes and international manufacturing

It’s becoming increasingly clear that Donald PG Trump is a man of pretty limited understanding.  Like the Donald, many people may not understand how large-scale international motorcar manufacturing actually works.

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The big companies such as VW, Ford, Toyota, Honda, General Motors, Mitsubishi et get don’t just build motorcars in a great big factory any longer. They manufacture components in different parts of the world and move them around to various points where they assembled them. It’s a complicated process that involves trade-offs between tariff barriers and various forms of debt and tax liability transfer. One of the advantages of production in Mexico is that Mexico has free trade agreements with a large number of countries, so exporting from Mexico is advantageous.

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It’s also advantageous to assemble motorcars in countries that have no tariff barriers. The problem in imposing a 30% tariff barrier on Mexican goods coming into the US is that Mexico will impose a 30% tariff on US goods (such as car components) coming into Mexico in retaliation. This means that Ford components coming into Mexico for assembly will attracted 30% tax and once assembled and exported back into US will attract another 30% tax. That’s a total of 60% added to the price of the Ford motorcar.

What Donald doesn’t seem to understand is who pays the 60%. It’s the person who buys the motorcar. The American consumer.

He also doesn’t seem to understand that if those motorcars are exporting to Europe, they will be 30% more expensive as a result of the tariffs imposed as they cross the Mexican border. That makes US exports to Europe more expensive and less competitive. That’s the whole point of free trade. But the Donald thinks tariff barriers protect US jobs and make US products more competitive.
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 The Germans will love Trump’s trade wars with Mexico

 Australians would be pretty happy about a trade war between China and America as well

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