There’s a lot of tariff talk this week after the Trump administration imposed tariffs on goods from China, Canada and Mexico and then delayed tariffs on Mexico and Canada. Understanding what the tariffs mean, why they’re being implemented, and what impact they have on Michiganders might be confusing.
Betsey Stevenson, a public policy and economics professor at the University of Michigan, sat down with Michigan Public's Stateside to discuss the basics behind the trade tax.
The Trump administration has stated that tariffs have been imposed on allied trade partners like Canada and Mexico because the countries have “failed to adequately address” cartel activity, the flow of illegal synthetic opioids like fentanyl, and the immigration of people without legal status into the U.S.
Stevenson said there isn’t much evidence that these issues are present at the Canadian-U.S. border, and there is not much clarity on why these levies are placed on Canadian goods.
“President Trump has claimed it's because of drug trade or illegal immigration, but we actually just don't have a lot of flows going across the border from Canada to the U.S. of those things. So, I think the goal remains a bit elusive," she said.
Stevenson said there's a lot of speculation about the reasoning behind the tariffs on Canadian goods. Canadian Prime Minister Justin Trudeau has said he believes the tariffs are part of an effort to weaken the country and annex Canada into a U.S. state, something that President Donald Trump has repeatedly stated he wants to do.
Though the motivation to levy a tax against Canadian goods is unclear, Stevenson said there are economic motivations behind placing a tariff on Chinese goods.
“There's certainly an argument with China that they may have been trying to compete with very low-cost manufacturing in a way that was disadvantaging American manufacturers,” Stevenson said. “I don't think you can make this argument with either Canada or with Mexico.”
Stevenson brought up the theory of comparative advantage, which allows countries to become specialized in making specific goods. Those goods can be produced efficiently or more cheaply and then traded with nations specializing in other goods.
Many products like tomatoes, avocadoes, broccoli, and strawberries are imported from Mexico, where the climate is more favorable, to American grocery stores. Stevenson said this is an example of how the countries that geographically sandwich the U.S. can export valuable goods that Michiganders would otherwise have a difficult time finding.
“If you look at Mexico, look, they have the climate, they've got the soil, and they've got the lower wage workers to be really good in growing fruits and vegetables. I don't think you're going to see that, all of a sudden, there's just a lot more jobs for Americans in agriculture and that’s going to offset this [new tariff].”
Stevenson said the tariffs would immediately increase the prices of goods that are imported to the U.S. She said the effort aims to increase U.S. competitiveness with international goods that are produced more cheaply.
Michigan imported about $84 billion worth of goods from Mexico in 2023, ranking third among U.S. states in most trade with Mexico. Michigan only fell behind Texas and California. The state’s top exports to Mexico include cars, trucks, and automotive parts. Michigan imports automotive parts, engines, and engine components.
She said the tariffs are likely to cause economic strain in the U.S. because they follow decades of free trade between Canada, Mexico, and the U.S. under agreements like the United States-Mexico-Canada Agreement and the North American Free Trade Agreement.
“We have developed production lines where things cross across the border all the time, and they're optimized to do that. You know, here in Michigan, our whole auto industry was built around the idea.”
According to Stevenson, the current political climate can create a catch-22 in which the U.S. is focused on deporting people without legal status while also increasing the demand for domestic agricultural production.
She said that more demand would increase wages for agricultural workers and create more incentive for people without legal status to go to the U.S. for work opportunities.
“I think we want to reduce undocumented immigration. The way to do that is not to make it hard for us to import fruits and vegetables from Mexico because that's going to mean we need to grow more fruits and vegetables for ourselves. And where are we going to get the workers to do that?”
According to the National Agricultural Workers Survey, 42% of all crop workers surveyed from 2021 to 2022 were not authorized to work in the United States.
Stevenson mentioned that while tariffs have historically been used to promote the domestic production of goods and prevent American manufacturing job losses, other important elements contribute to that job loss.
“If you think about manufacturing, the challenge for every developed country, both Canada and the United States, is that technology is what has taken most of the manufacturing jobs, not trade,” Stevenson said. “And you don't see any attack on technology.”
