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Mexican import tax could hit Californians right in the avocados




A farmer harvests avocados at an orchard in the municipality of Uruapan, Michoacan State, Mexico, on October 19, 2016.
With the United States buying most of the Mexican avocado production and the domestic demand constantly growing, the price of avocados in Mexico is suffering frecuent increases.  / AFP / Ronaldo SCHEMIDT        (Photo credit should read RONALDO SCHEMIDT/AFP/Getty Images)
A farmer harvests avocados at an orchard in the municipality of Uruapan, Michoacan State, Mexico, on October 19, 2016. With the United States buying most of the Mexican avocado production and the domestic demand constantly growing, the price of avocados in Mexico is suffering frecuent increases. / AFP / Ronaldo SCHEMIDT (Photo credit should read RONALDO SCHEMIDT/AFP/Getty Images)
Ronaldo Schemidt/AFP/Getty Images

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Earlier this week, President Donald Trump signed an executive order authorizing the construction of a southern border wall between the United States and Mexico. 

Throughout the campaign, Trump contended that Mexico would foot the bill for the barrier. When asked how the administration would pay for the wall Thursday, however, a White House spokesperson suggested that the United States could impose a 20 percent tax on Mexican imports — a move that would actually have Americans paying for said wall.

California and Mexico have a long established trade history. One report estimates that "Mexico purchases 16.2 percent of all California exports." Conversely, California imports about $41 billion worth of goods from Mexico. 

Former US trade representative Peter Cowhey joined Take Two to talk about how an import tax could impact people living in California. He's now a professor at UC San Diego.

Produce

Peter Cowhey says avocados are just one of the items that will cost consumers more. Tomato lovers may also be forced to shell out more:

"Tomatoes actually represent an interesting story," Cowhey says. "There is an enormously complex canning industry tied to tomatoes which operates on both sides of the border. So some of these would actually be manufactured goods that would be taxed."

Cowhey adds that consumer demand for fresh food has forced farmers both north and south of the border to work together to keep certain produce in stock year round. Take raspberries for example:

"You'll notice if you look in the grocery stores that, depending on the exact cycle of the year, more of the raspberries will come from Mexico than they will from the United States," Cowhey says.

That could lead to dwindling supplies — or some expensive berries. 

Cars

Manufactured goods from Mexico are often sophisticated in nature (think computers and refrigerators). Peter Cowhey says a border tax could present an enormous hurdle to companies that have come to depend on Mexico. 

"U.S. firms now have an integrated North American production strategy," Cowhey explains. "What that simply means is  — let's say for an automobile — any automobile you have that has been stamped 'Made in the United States' probably had components and production activities cross the border 20 times among the US, Canada and Mexico."

As a manufactured product bounces between two or three countries, it picks up added value. This can make figuring out how to tax extremely complicated. It also blurs the line between what constitutes a Mexican good and an American good. 

One might be led to ask, "can't we just make it all in-house?" 

Well, maybe. But Cowhey says it could take a long time. 

"The United States automobile plants depend on those inputs from Canada and Mexico," Cowhey says. "To recalibrate that production network in the United States will be a slow, multi-year process."

What to expect when you're expecting taxes 

As far as agricultural goods go, Peter Cowhey says there's already a pretty stiff tax in place: about 17 percent. An additional 20 percent tax would lead to an "enormous" jump on agricultural goods. "And that is going to be directly manifested on the grocery shelves of our state," Cowhey says. 

For manufactured goods, the current import tax is about 4.5 percent. If the item getting imported was say, a car, Southern Californians could wind up paying a "couple hundred" dollars more.

"And it may be more depending on how they do it," Cowhey says. 

Overcharged 

If Trump's suggested tax did become a reality, Cowhey says that, given the volume of goods imported from Mexico, Americans would wind up paying for the border wall four times over.

"We import about $300 billion a year in goods, including manufactured and agricultural goods in Mexico each year," Cowhey says. "[If] you added another 20 percent tax effectively on the border on these, that's about a $60 billion dollars, which is far more than you need to build the wall — if those estimates of cost of construction are accurate."

Click the blue media player above to hear the full interview.

This post has been updated.