If you’ve eaten an avocado recently, it probably came from Mexico.
Where are we going? To unintended consequences.
A Guacamole Tax
It might soon cost more to make guacamole. One reason is the avocado. We import two-thirds of our avocados and most of those come from Mexico. Depending on the season, an avocado costs somewhere between $1.00 and $1.50.
If free trade with Mexico becomes taxed trade, our avocados will be more expensive. And so too could most of our guacamole ingredients. As you can see (below), except for the salt, guacamole could be labeled “Made in Mexico”.
Guacamole recipe:
The Tax
For most of last year, the wholesale price of an avocado was close to $.50 at the border. If a 20% Mexican import tax were levied that was based on the “entry” wholesale price, then we would pay an extra $.10. But then again we might not. We have to see whether the middlemen passed along the expense.
Meanwhile, the higher price could be an incentive for more U.S. production. But it takes four to five years for newly planted trees to bear fruit. Knowing the political climate could reverse, farmers might not take the longterm risk.
Indeed, we cannot be sure how the supply curves for all of our guacamole ingredients will shift.
Our Bottom Line: The Butterfly Effect
Since 1994, NAFTA established free trade among the U.S., Canada and Mexico. One result was much more fruit on our tables. This map displays the proportion of Mexico’s edible vegetable exports the U.S. receives. For fruit and melons, the map looks similar.
But it is never quite that simple. For example, I actually discovered a tomato price floor. Described at the USDA website, the 1996 floor prevents Mexican tomato prices from falling below a specified amount.
So, thinking of the impact of an import tax, we can just conclude with this proverb:
- For want of a nail, the shoe was lost;
- For want of a shoe, the horse was lost;
- For want of a horse, the rider was lost;
- For want of a rider, the battle was lost;
- For want of a battle, the kingdom was lost!
And think about unintended consequences.
My sources and more: As an example of the massive complexities of a tax on Mexican goods, this avocado article is perfect. It was an ideal springboard for the drier data from the USDA. Finally, although we have not mentioned David Ricardo (1772-1823), we cannot forget comparative advantage.
