In 2022, Minnesota traded a total of $6.2 billion with Mexico. With our neighbors to the north in Canada, Minnesota traded more than $21 billion.
In response to the question of who pays for tariffs, University of Minnesota professor of economics Tim Kehoe replied, “And the findings have been that somewhere between 90% and 100%– the number gets bigger over time– of the tariff revenue comes from US firms or consumers. That is, we pay more for the imports.” But this is really a follow-the-money answer. Where does the cash come from that goes into the tax revenue? The consumer who made the purchase.
This is an incomplete analysis.
The economist says Minnesotans will pay higher prices to cover the tariffs. Yet he suggests that when countries retaliate, they simply have the choice to buy goods elsewhere. It seems that a country that imposes a tariff suffers, and one that chooses a less efficient trade with another partner also suffers a loss. The question isn’t whether the less agreeable trading arrangements are costly. The question is what the cost of buying is, and is that worth it?
Consider the objectives at hand.
“Now, President-elect Donald Trump says, on day one in office, he will impose sweeping new tariffs of 25% on Canada and Mexico and another 10% tariff on China. Trump says, the Mexico-Canada tariff is to crack down on illegal immigration and drugs. “
I’d be interested in an analysis that shows how tariff penalties will incentivize these trading partners to respond to the above-mentioned objectives. Will the cost of this trade arrangement induce Mexico and Canada to put some muscle into immigration issues? How about drugs?
The American people want these issues addressed, and this implies they are willing to put resources towards this aim. Will these new trade agreements prove to be the most cost-effective compared to other enforcement options? (MPR article quoted)
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