Shutting down border flirts with disaster


By Mike Dorning - Bloomberg News



WASHINGTON — U.S. auto production would grind to a halt in a week, while pork producers and dairy farmers would be shut out of their largest export market. Grocery shoppers would quickly face shortages of avocados, tomatoes and other produce or steep price increases as supplies plummet.

President Donald Trump has been short on details about his threat to close the border with Mexico to cut off illegal immigration, and even inside the White House aides are unsure how — or even if — he’ll follow through. But any move that would shut down or hinder $1.7 billion in daily cross-border trade would have far-reaching consequences for the U.S. economy.

Amid warnings from his Republican allies and his advisers, Trump on Tuesday dialed back somewhat from his threat by tweet last week to shut the border if Mexico didn’t stop the flow of Central Americans heading north. He suggested the U.S. could “close large sections of the border, maybe not all of it.”

But he also made clear the idea of a broader action isn’t off the table.

“Let me just give you a little secret: security is more important to me than trade,” Trump said at the White House. “I’m totally prepared to do it. We’re going to see what happens over the next few days.”

Supply Chains

Analysts said a border closing would rapidly reverberate through a U.S. economy in which supply chains are closely integrated with Mexico, especially hitting the auto industry and farmers already reeling from the impact of Trump’s trade war with China. Avocado prices have already spiked.

“You can’t build an auto without all the parts,” said Kristin Dziczek, a vice president of the Center for Automotive Research in Ann Arbor, Michigan. “Within a shift or two we would start to see some parts shortages, and some of those parts are so mission critical we would see the entire industry shut down within a week or so.”

A typical vehicle is assembled from 30,000 parts, and Mexico is the largest source of foreign components for U.S. manufacturers, who have geared their production to lean inventories and just-in-time delivery. Seats, for example, often go back and forth across the border several times as they are produced in stages, said Charlie Chesbrough, a senior economist with Cox Automotive Inc., an Atlanta-based research and marketing company.

“I don’t see how the industry can react in any way,” Chesbrough said. “You need very specific parts to go into a vehicle.”

Auto Parts

Even if the administration decides to exempt auto parts from a border closing, that would be difficult to do in practice, Dziczek said. Late Tuesday, Trump economic adviser Larry Kudlow said the administration was considering ways to limit damage, telling CNBC one idea might be to find ways to allow freight across the border to “ameliorate the breakdown in supply chains.”

For American farmers and grocery shoppers, a border closing “would be disruptive really quickly,” said Veronica Nigh, an economist with the American Farm Bureau Federation.

Mexico supplies more than 60 percent of all fresh produce sold in the U.S. during the winter and early spring, said Lance Jungmeyer, president of the Fresh Produce Association of the Americas, a trade association that represents importers and distributors of Mexican produce.

Price Surges

American shoppers would see an immediate price surges and then virtual disappearance from supermarkets of tomatoes, cucumbers, bell peppers, squash, eggplant, green beens, mangoes, melons, berries and chili peppers, Jungmeyer said.

Trump’s threat already has driven up the wholesale price of Hass Avocados in Mexico City by 34 percent since Monday, the biggest one-day gain in a decade. Mexican avocados account for 75 percent to 80 percent of U.S. consumption, according to the Hass avocado board.

Mexico also is the third-largest export market for U.S. agriculture and the largest for corn, pork and dairy products, according to the U.S. trade representative. It is also the largest foreign source of food for Americans.

Trump’s Agriculture Secretary Sonny Perdue expressed concern a border shutdown would hurt U.S. Farmers.

“It’s not helpful,” Perdue said during a visit to Purdue University in Indiana that was recorded by the department. “I would like to see certainly it not affect agricultural trade in that regard, whether it’s rail or truck, but that may be wishing for too much.”

Sixty-nine percent of agricultural trade travels across the border by truck, Nigh said, including virtually all U.S pork and dairy exports to Mexico.

“If we lose the market, it would be catastrophic,” said Jim Monroe, a spokesman for the National Pork Producers Council. “We’re a highly export-dependent industry.”

Farm Income

Five new pork packing plants opened in the U.S. in last few years, only to have export markets contract because of the trade wars, Monroe said.

“It could not come at a worse time,” Monroe said. “We’ve already seen a significant drop in producer profitability because of tariff disputes.”

Tom Vilsack, a former U.S. agriculture secretary who is now president of the U.S. Dairy Export Council, said in a statement that closing the border “would be a gut punch that could set the industry back by a decade or two.”

“There is not a ready alternative market for the millions of gallons of milk that are converted into the thousands of tons of dairy ingredients and cheese we ship to Mexico,” Vilsack said.

White House Press Secretary Sarah Sanders said Tuesday the president hasn’t set a timeline for action. The president left himself an opening to retreat by saying Mexico has stepped up apprehensions at its southern border “as of yesterday.”

“Let’s see if they keep it done — if — if they keep doing that,” Trump said.

Consternation in Congress

Still, Trump’s threat, and the way he made it, caused consternation among Republicans in Congress and drew derision from Democrats.

“Closing down the border would have a potentially catastrophic economic impact on our country, and we would hope he would not be doing that,” Senate Majority Leader Mitch McConnell said.

Wisconsin Republican Senator Ron Johnson, chairman of the Homeland Security Committee, indicated the administration hasn’t given Congress any insights.”I’m not quite sure what he means by closing the border,” Johnson said.

South Dakota’s John Thune, the second-ranking Republican in the Senate, called closing the border a “bad idea” and expressed some frustration with Trump’s lack of consultations.

“Obviously this is a president who sometimes tends to move on his own and then have some of those conversations later,” Thune said. “That’s the dynamic everybody here deals with.”

But Senate Republican Lindsey Graham of South Carolina, a Trump ally, said he’s “all for” closing the border if it will “compel Congress to fix the underlying problem.”

House Speaker Nancy Pelosi, speaking at an event in Washington Tuesday, dismissed Trump’s threat to shut down the border as “an applause line, not an idea.”

By Mike Dorning

Bloomberg News

Post navigation