President-elect Donald Trump will take office in less than two months, and he’s already threatening broad tariffs on products from Canada and Mexico.
Trump posted on his social media platform, Truth Social, that he would impose a 25% tariff on his first day in office until those two countries stop the influx of drugs and migrants illegally crossing into the United States. Apprehensions at the U.S.-Mexico border are at a four-year low.
Canada and Mexico are two of the U.S.'s biggest trading partners. The threat is causing concerns for businesses in San Diego. With the area's proximity to the border, the local economy would feel the brunt of those tariffs more acutely.
Eduardo Acosta, customs liaison for the Otay Mesa Chamber of Commerce, said members have been calling him since Tuesday night over this.
"You just can't hurt people like that, the products — the moms and pops — the people that have to pay for the truck — everything will go skyrocket," Acosta said. "(Trump) just puts everybody out of business. I don't think that's his goal."
American importers are the ones paying the tariffs, not the country where those tariffs are levied. Acosta said some of the Chamber's members are debating about still doing business in Mexico.
"People are starting to think about stopping to invest in Mexico," he said. "It's all about manufacturing, and that's all of us in the supply chain world."
Peter Cowhey, a trade policy expert at UC San Diego School of Global Policy and Strategy, said the threat of tariffs against Mexico is going to create uncertainties. U.S. companies responding to the pressure to reduce their presence in China have shifted their production to Mexico.
"Now they've just spent the money to go to Mexico, and suddenly Mexican production coming into the U.S. may be subject to new tariffs," he said. "That's what you call real-live economic uncertainties in business planning."
'That just doesn't sit well'
The tariffs could also mean higher prices for U.S. consumers as well.
“Expect the cost of guacamole to go up,” Cowhey said.
California imports about $500 million worth of fruits and vegetables from Mexico each year, he said. That means prices could increase at grocery stores and restaurants.
“The cost of making food is extremely high in terms of imports of things like fruits, vegetables and other imports. And they’ll show up directly on menus,” he said.
That is concerning for Cristian Liang. He owns several restaurants in San Diego, including Common Theory and Sura Korean BBQ.
"(The) restaurant business already operates under very slim margins," he said.
The profit margin for restaurants is between 3 to 5% and there's only so much restaurants can pass on to the consumers.
“I mean, imagine trying to pay for a $19, $20-something burger, and you still have to increase that," Liang said. "That just doesn't sit well.”
Those prices approach those of high-end restaurants, whereas Common Theory is a German beer-hall-style gastropub. Liang said that his suppliers are already telling him to expect increases for Mexican spirits, such as tequila and mezcal, because of the tariffs.
University of San Diego economist Alan Gin said restaurants would have to absorb some of those costs.
"So they'll be adversely affected too in terms of less profitability," Gin said. "And that might even cause some restaurants to go out of business."
Liang recently opened Sura Korean BBQ in Otay Mesa. He hopes the tariffs won't come to pass because that could mean closing the restaurant, causing a loss of at least 20 jobs.
Economic chain reaction
It's not just the food industry that could be affected. San Diego's tech industry could also take a hit because tariffs would disrupt the supply chains for biotech and manufacturing.
"The thing to understand about this is that those 10 complex manufacturing chains for, let's say, pharmaceuticals, tend to lead to people and products crossing the border multiple times in the same production run in order to coordinate all the pieces," Cowhey said.
He said the tariffs are essentially a 25% tax on the consumer and that could lead to inflation. Beyond that, Gin said it could also lead to shortages in fresh fruits and vegetables that Southern Californians have come to expect.
"If there is some disruption in terms of trade, there might be less imported goods," he said. "And there might be shortages of the produce that we enjoy here in San Diego."
The question now is whether Trump can impose those tariffs. It would violate the United States-Mexico-Canada (USMCA) agreement that Trump negotiated when he was president in 2018.
Cowhey said while the trade agreement has various short-term escape clauses that would allow the U.S. to impose temporary tariffs, what Trump is proposing is not short term.
"And he's linking tariffs to nontrade-related policies like immigration and drug issues, and that is not something that is legal under trade agreements," Cowhey said. "And, yes, you can expect that Mexico and Canada will retaliate with their own tariffs."
