This great article from CNN puts things into perspective and it makes a great point that investing in Mexico could grow the middle class there and could be better for business in both countries! As Carlos points out - "A lot of facilities in the U.S. are coming to Mexico because labor here is cheaper." It is interesting to think about the ramifications if something were to happen like what Mr. Trump wants i.e., building a giant wall and having Mexico pay for it, to the economic state of companies in the United States. What do you all think would happen if Mr. Trump was elected president to the state of businesses in light of this article?
http://money.cnn.com/2016/03/31/news/economy/mexico-us-globalization-wage-gap/index.html?iid=hp-toplead-dom
I think that Trump becomes President and his plans to "build a wall" and bring all the lost jobs back to the U.S succeed, there could be major consequences domestically. Most obviously, is the fact that the cost of labor would drastically increase for similar jobs, and while this may provide jobs for many Americans, companies such as GE and Ford will have to dramatically increase the price of products to offset the increased costs.
ReplyDeleteHowever, I find the idea of investing in Mexico to increase wages is particularly interesting. If the middle class in Mexico were to grow and earn more, they could purchase more price American made products, which increase manufacturing in the U.S. But the question I have to wonder is what is the true incentive for them to buy more expensive American products over cheaper Mexican products? Wouldn't it make more sense for Mexicans to buy cheaper domestically made products instead of sending their money to the U.S?
I agree with you. Isolationism is no longer an effective policy in such a globalized world. Companies wouldn't be able to utilize the efficiency of operating in different nations. I feel like if Trump were to be elected and were to initiate such policies, we would see a lot of large companies moving out of the US.
DeleteIf Trump get elected and decides to increase tariffs, we will be in huge trouble. Companies are moving to Mexico because the labor is cheaper and there are less environmental standards. Both of these allow for greater production as well as higher profits. If tariffs are put in place, then the companies will not be able to make as much money as well as the workers will probably be forced to work longer hours or in worse conditions in order to offset the tariffs.
ReplyDeleteThe prices of the imported products will rise, shifting demand away from the imported goods towards domestically produced goods. This is good for companies producing domestically and labor domestically. This is also in a perfect world with no market failures.
When thinking about the American public, the unskilled workers will be drawn towards these jobs. However, they will probably demand high wages, great working conditions and shorter hours. Producing domestically would not be as efficient as it would be overseas. Also, some American's might believe that they are overqualified for the jobs and not want them in the first place creating even more problems for that industry.
In addition if production stops in Mexico, the externalities, like pollution, will be brought back to the United States. So, overall this is not a good idea.
As stated in the article, NAFTA has accelerated the migration of US jobs to low paying countries, but these jobs won't likely be returning. Trump's proposals are preposterous to begin with as many of them are broad statements with little rhetoric or simply false claims. How and why would Mexico "pay" for a wall or our trade deficit? A 45% tariff on Chinese goods? Mr. Trump has a lot to learn about international trade.
ReplyDeleteI don't think that the wall should even be humored. It is xenophobic. We can't afford to give any legitimacy to the idea under the guise of "good business".
ReplyDeleteI agree with you Anthony, but it is such a big part of his campaign, and so many people agree with it! I think it's important to look at the ramifications of policies such as this.
DeleteThis article/discussion made me think back to last quarter when I took international trade with Dr. Hultberg. It made me remember something from our book regarding the Factor Price Equalization Theorem. The book isn't online so I'll just write the quote I was thinking of.
ReplyDelete"According to Factor Price Equalization, international trade substitutes for migration of unskilled workers across borders. When China or Mexico exports an 'unskilled labor'-intensive good to the US, it is "as if" a certain number of unskilled workers migrated to the US. By trading goods and services, nations are indirectly trading their factors of production. This is why, theoretically and in practice, international trade policy is very closely related to migration policy. Perfectly free trade would give us exactly the same result as perfectly free migration. If you are in favor of free trade, should you also be in favor of free migration?"
Does anyone have any thoughts on this?