Donald Trump has arguably created more of an uproar in Mexico, where his slim chances of being elected are far less well understood. How ever you feel about the potential disaster of a President Trump, it’s worth looking, at least momentarily, at how some of that disaster would likely play out.
Steep tariffs on imports from either China or Mexico would severely disrupt supply chains to U.S. industry and probably immediate plunge the United States into a deep economic spiral. So don’t look at those happening, even if Trump moves straight into the White House. The likelihood of a recession is so high that it just wouldn’t happen.
Trump’s poor understanding of the meaning of trade deficits lead him to declare that trade wars need to be fought, but imports and exports don’t need to be balanced to be profitable. As the US auto industry is deeply integrated with its Mexican counterpart, one could expect that most factories in the US would simply have to close, and their headquarters would likely be forced to move to Mexico entirely. Although engines for Ford Trucks are shipped up from Mexico now, there’s not much reason that the most profitable product line from all of Ford would be able to stay in the US if it were forced to re-locate engine plants north of the border by tariffs.
Similarly, Fiat Chrysler’s vehicles could increase in price by as much as US$9,000 with Trump’s tariffs protecting them.
As US incomes and spending began to plummet, there’s almost no question that cheap natural gas flowing into Mexico at record rates would cease to flow. Some of that interruption would ultimately benefit Mexico’s now booming solar energy industry, as most of the US natural gas goes to electricity generation in Mexico. A current trade war between the US and China has not benefited either market and in fact has resulted in steep price increases on both sides of the Pacific.
Similarly, US steel manufacturers are struggling to recover from an “anti-dumping” duty placed on Chinese made steel pipes between 2009 and 2011. Even years later, the glut in global steel supplies has led to sagging prices and shuttered steel mills.
Yet the oil industry – almost everywhere – has always supported Republican candidates. In the US, they’re certainly not lining up behind the Clinton campaign, even despite their significant concerns – and even hostility – toward Trump. Trump’s irksome comments about propping up farmers with increased use of ethanol sent much of the US oil industry into a tirade.
South of the border, the oil industry would likely be significantly affected by an arctic chill that would sweep over US-Mexico relations. That would mean far fewer cross border partnerships and significant damage to both economies. Mexico’s oil industry is already in perilous straits from years of mismanagement and especially from slumping world oil prices. It will be further hurt by economic troubles and expensive trade disputes.
There’s almost no question that Trumps understand even less about world energy markets than he does about hotels and condominiums. But collapsed world economies are no joke. While Pemex is struggling to convert itself into a broad oil industry umbrella organization and away from its role as state-protected monopoly, Trump could actually provide the incentive to seriously beef up the fledging private industry. In Mexico, that private industry is growing quickly even despite the longest, lowest oil prices in world history.
Most of them are counting on eventual higher petroleum costs, but a damaging and extensive trade war would have implications here too. Seriously interrupting trade with Mexico’s largest trade partner would have to result in serious revisions to every economic policy on the book. That’s true even if Mexico’s economy completely tanks. Which it likely would.
Such an economic disaster would provoke far higher immigration levels into another now struggling economy. (Current immigration levels of Mexicans to the United States are negative and probably the lowest they’ve been in recorded history.)
As noted above, the chances of a Trump presidency are remote at best. Nevertheless, disasters do happen. And with the mixed success that NAFTA ultimately produced there probably are reasons to renegotiate some of the trade agreement’s finer points. This is particularly true of agricultural products, but scrapping the entire agreement would be result in too many collapsed industries to even name.
Unpredictability is one of the things trade agreements attempt to correct and remedy. Still, we live with some degree of risk and with things like weather and natural disaster. Pure man-made disasters happen too. The risk of a Trump presidency is real but its likelihood is not high.
While the Mexican oil and energy sectors could undoubtedly survive a Trump typhoon, there’s no telling what the broader economic disaster would leave in its wake. There’s also not too much point in speculating. Trump probably doesn’t understand the checks and balances built into the United States Constitution. But very few of his proposals would be met with enthusiasm by even the most radical US congress.