What Will Tariffs Do To Our Hamburgers?

With talk of tariffs on goods from Canada and Mexico, we should look at the travels of a burger. We can call it our USMCA (United States Mexico Canada Agreement) burger.

U.S. Trading Partners

To prepare a USMCA burger, you need a cow from Alberta that enjoys corn from Iowa. Next, just add a bun made from Saskatchewan wheat, a Mexican tomato slice, some Arizona lettuce, and Wisconsin cheese. Then, if you want fries, yes, we grow the potatoes. But many are processed in Canada before returning as frozen french fries. As for dessert, we could feast on Mexican strawberries.

And perhaps we ate the burger in a car that traveled to and from Mexico before it was assembled:

That USMCA burger and our car seat display the back and forth trips that larger trade statistics (below) hide:

So please keep those details in mind when we hear about a 25% tariff on goods from Canada and Mexico.

Comparative Advantage

As economists, we can say that it comes down to comparative advantage. First observed by 19th century economist David Ricardo (1772-1823), comparative advantage just means you do what you sacrifice the least for. So, if I can write for econlife or do my dishes, I prefer sacrificing the dishes. Eventually they would get washed, but by someone who has less to sacrifice.

Similarly, as USMCA intended, when goods and services flow smoothly among three nations, if we each sacrifice the least, then all can benefit from comparative advantage.

Our Bottom Line: The British Coastline

With posts like today’s I like to return to the coast of Great Britain. Explained by a classic paper from mathematician Benoit Mandelbrot, the shorter the ruler, the longer and longer (and longer) the coast. In other words, the closer you look (seeing all of the inlets), the longer it gets:

Indeed also for tariffs, the closer we look, the more problematic they become, especially for hamburgers and car seats.

My sources and more: This 2018 Washington Post focus on U.S. trading partners had the topics but with outdated statistics. However, for recent data, we linked to the Observatory of Economic Complexities, here and here, to this past econlife post, and to the BLS.