In my quest to determine whether Donald Trump is the guy who will restore our nation’s greatness,  or whether he is a maniacal megalomaniac, I’ve started examining some of his “short on the details” proposals.   Today I want to talk about the exciting topic of international trade and tariffs, specifically Trump’s insistence on Mexican payment for the 1000 mile Trump wall via imposition of a 35% tariff on automobiles assembled in Mexican maquiladoras and shipped to the USA.   I happen to be the proud owner of such a vehicle (2014 VW Jetta assembled in Puebla), and I did not have such a tariff impact my ultimate retail purchase price.  And if the price had been 35% higher because of a Trump-like tariff, I would have shifted to other alternatives. First though, before examining Trump’s proposal, let’s figure out why in the world we buy cars assembled in Mexico.   Isn’t that like buying semiconductors made in  Birdsboro ?   Fifteen years ago, I watched a U.S. company attempting to teach monkeys to sort retail coupons at their processing factory in Ciudad Juarez !

Well, the North American Free Trade Agreement (NAFTA), signed by Bill Clinton in 1993, certainly had the effect of stimulating trade among the three nations, but opened the door to allowing manufacturers to seek the lowest labor costs to produce their products.   Coupled with constant and oppressive wage and work rule pressures from manufacturing labor unions (UAW, URW, AFL-CIO), why wouldn’t American manufacturers choose to hire Mexican workers at $1 an hour ?      My readers know how I dislike quoting Bernie Sanders, but on the campaign trail  Bernie accurately notes the 800,000 manufacturing jobs lost since NAFTA’s origin.

So, Trump’s solution is to impose, by executive order,  a 35% tariff on fully assembled autos returning to the USA, because there is no way the Congress will gut NAFTA in this way.    What are the probable consequences ?   First, U.S. buyers would move to cheaper alternatives, and this could also be expanded to other capital goods made in Mexico.   Second, in response, the maquiladoras churning out the vehicles would lose economic viability and would shut, thus imposing an economic burden on Mexico and increasing the pressures for its citizens to “migrate” northward.   Thirdly, and most importantly, the manufacturing of these vehicles would not return to the USA, but would be shifted to other low labor cost regions of the world.   Is Trump going to impose tariffs everywhere, thus setting off inflationary punishment on the voters who just elected him ?      If you don’t solve the base problem, artificially high labor costs, there is no permanent free market solution to the problem of lost manufacturing jobs.   No one gets this.  Trump doesn’t get this.

The solution became evident this past week as I drove through the Bible belt.   There I witnessed tens of thousands of American jobs at American Kia and Hyundai factories in Alabama and Georgia and South Carolina.   Hit the root of the issue by encouraging (with tax incentives) the manufacture of more cars in solid union-free factories in right-to-work states.   WHAT THE HECK !