Good Trade Relations between Mexico and U.S. Vital for Utah Exporters

Salt Lake City—With one in four Utah jobs supported by international trade, Utahns should take a special interest in the rhetoric coming out of Washington, DC—especially in regards to our country’s relationship with Mexico. Derek Miller, CEO of the World Trade Center Utah, spoke at a Newsmaker Breakfast event yesterday at the University of Utah’s Kem C. Gardner Policy Institute, where he stressed the importance of international trade to the Utah economy.

Utah is the sixth-fastest growing export state in the nation, said Miller, because Utah businesses are not afraid to get engaged internationally and sit on a vast store of natural resources, from metals like gold, silver, copper and iron, as well as coal. And while the state heavily trades commodities with our No. 1 and 2 trade partners, the U.K. and Hong Kong, many Utah exports other than commodities go to our neighbors to the north and south.

“[The UK and Hong Kong], that’s where the legers are kept for commodities,” said Miller. “But when you talk about the things that you and I usually think about for exports? It really is Canada and Mexico.”

According to figures provided by the Kem C. Gardner Policy Institute, the value of Utah’s 2016 exports to Mexico was $741 million, a figure which has tripled in the past decade. Utah imports $3.3 billion in goods from Mexico, which ranks No. 1 for the Beehive State’s import origins.

With the current administration promising to introduce an import tax or a border adjustment fee, renegotiate the North American Free Trade Agreement (NAFTA) or construct a wall along the southern border, Utahns and Utah companies may be the ones paying a hefty price. In scenarios run by the Institute’s economists, a 25 percent export reduction with Mexico would account for 1,329 jobs lost and $135 million lost in the state’s annual GDP. A 20 percent tariff on imports would account for 5,568 jobs lost and a reduction of $394 million in Utah’s annual GDP.

“A trade war is like a regular war. There are no winners. It’s bad for everyone, all the way around,” said Miller.

And in looking at the three ideas the administration has considered to pay for the border wall—a flat 20 percent tariff for Mexican imports, a border adjustment tax (jokingly called a “tariff-no-tariff”), and dipping into remittances sent from Mexican families in the U.S. to others in Mexico—all are complex and could lead to greater consternation between the two nations, with Utah consumers and businesses dangling in the middle.

“You will recall that the first idea was a flat 20 percent tariff on all goods coming from Mexico, imported to the U.S. … Just a flat tariff that’s specifically targeted at one country, obviously, it feels personal. That has the greatest chance of inciting a trade war,” he said. “If you add 20 percent onto goods that are coming from Mexico into the U.S., and they’re going into U.S. stores … who pays that? The consumer pays that. Mexicans aren’t paying for it. The Mexican government isn’t paying for it. U.S. consumers are.”

Miller says that he does support the administration’s desire to renegotiate NAFTA, because NAFTA is now over 20 years old, and needs to be refreshed. There are parts of NAFTA, he says, that put U.S. companies at a disadvantage now. Utahns, to make sure their interests are protected, need to communicate—and loudly—with our Congressional delegation.

“Any company will tell you tell you that what they need more than anything else is certainty and predictability, because that’s what leads to profitability. Certainty and predictability in international trade means rule-based trade. It’s particularly important when you’re doing business with a company in another country, because you don’t have the same legal system. So, if you don’t have a trade agreement in place, it’s the Wild West,” said Miller.

There are other reasons other than trade to keep our relationship with Mexico from becoming “frosty,” said Natalie Gouchner, director of the Kem C. Gardner Policy Institute. For instance, a good relationship with Mexico is paramount for our national security, with the sharing of intelligence and the movement of people between the countries. Mexico could also choose to boycott American companies. And walls can always be circumnavigated.

Miller lamented the fact that “globalization” has become a negative buzzword, as global trade is so profitable for American, and specifically Utahn, companies. He also stated his belief that a “not just broken, but upside-down” immigration system has led to the high number of undocumented immigrants in our country—leading to frustrations from Americans.

“The reason that you get people with good intentions coming in, where the only illegal thing they’ve ever done in their lives is coming into the United States illegally… it’s because they don’t have an efficient legal way to get here,” he said. “In this broken system that we have, every time we’ve ever tried to deal with it, there are two components. The first component is secure the border. The second component is to deal in a humane and charitable way with undocumented residents who are already here. Whenever we do it, we always do the second part and we never do the first part. Why did Trump’s wall resonate with people? The conclusion I came to, they felt that, as a country, we were on this merry-go-round that had no end to it.”

Miller also expressed concern at the idea that American companies need to be bribed to stay in the country or punished for outsourcing their jobs. In general, protectionism stances, he said, is an admittance that we can’t compete in an open market—something the administration would need to look no further than Utah to see that’s untrue.

“Look to Utah as a model to accomplish what you’re advocating for. If I understand what the President is advocating for, it’s more U.S. companies manufacturing more in the U.S. and selling more goods to consumers outside of the U.S. I would say, look at Utah,” said Miller. “Somehow, our companies in Utah have figured out a way to make the free market work for them. They’ve done it in a way exactly as capitalism requires them to, which is to be very competitive, find your niche in the marketplace, drive down costs and create value. Utah is a trade surplus state. We have $12 billion that we export. Our trade surplus annual average is to the tune of $4 billion every year.”