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Impact of Trade War With Mexico Would Be Felt Beyond Border States

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A report released in February by WalletHub identified which states would be hurt most by a trade war with Mexico.

The trade plan outlined on the White House website centers on withdrawing from the Trans-Pacific Partnership and renegotiating NAFTA.

Bloomberg reported Friday that the peso rose 1.9% following comments by U.S. Commerce Secretary Wilbur Ross that the currency could recover “quite a lot” if the Mexican and U.S. governments can come to an agreement on trade. However, Mexican Economy Minister Ildefonso Guajardo told the news service in an interview on Monday that his country wouldn’t entertain suggestions to implement duties or quotas in imports from Mexico.

Guajardo said NAFTA “has been a very efficient tool to improve U.S. and Mexico relationships,” and noted the agriculture and manufacturing industries could be especially hurt by changes to NAFTA.

Antonio Saravia, assistant professor of economics and director of the BB&T Center for Undergraduate Research in Public Policy and Capitalism at Mercer University, said in the WalletHub report that pulling out of NAFTA would be “disastrous.”

“Mexico and Canada have always been among the top five major US trading partners. Mexico and Canada account for about 34% of U.S. exports and 26% of U.S. imports,” he explained in the report.”

Harlan Holt, visiting assistant professor of economics at Union College, believes such a move would be felt more by Mexico than the United States. “Because the U.S. is such a huge and well-diversified economy,” he said in the report, NAFTA’s “impact on U.S. GDP by most estimates has been rather small (but still positive). So the direct economic impact on the U.S. is likely negative (higher prices, lower GDP), but only modestly so.”

To judge the impact of trade restrictions on states, WalletHub used data from the U.S. Census Bureau, the U.S. Bureau of Economic Analysis, the Bureau of Labor Statistics and The Wilson Center, a nonpartisan think tank. Analysts graded states on their exports as a share of total state exports and GDP, imports as a share of total imports and GDP, and the share of jobs supported by trade with Mexico. Each of those metrics was weighted equally in the report.

WalletHub found Texas would be hurt most by a trade war with Mexico, followed by Arizona and Michigan. New Mexico and Kentucky round out the top five states that would suffer the biggest impact.

David Kaun, professor of economics at University of California, Santa Cruz (disclosure — and a former professor of mine), noted that consumers in both countries will be hurt by a trade war, either through fewer choices or higher prices. For producers of goods, it’s harder to say what the impact might be.

“Those competing with imports clearly would benefit; those using imports in producing final products” would lose out, Kaun said in the report. “Bottom line is that net effects for both countries would be clearly negative.”

Arizona, New Mexico and Texas have the highest percentage of total state exports going to Mexico, followed by South Dakota and Michigan. Arizona and Texas had the highest exports to Mexico as a percentage of GDP.

Michigan is home to Ford and General Motors, which have assembly plants in Mexico. Kentucky tied with Michigan and Texas for states with the highest percentage of imports from Mexico as a percentage of GDP. Arizona, Michigan, New Mexico, Texas and Utah all have a five-way tie for highest imports as a share of total state imports.

Washington D.C. and Hawaii tied for the regions with the highest percentage of jobs supported by trade with Mexico, despite being among the least impacted overall, according to the report. Washington D.C. has the lowest percentage of imports from Mexico, both as a percentage of total imports and GDP.

Source: WalletHub

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