- David Ramos/Getty Images
The deterioration in US-Mexico relations has wounded the peso, driving down the buying power for many Mexicans, particularly those who cross the border to shop at stores and markets in the US.
Small and informal businesses in the border area have struggled of late, as the declining value of the peso against the dollar has kept many Mexicans who would cross the border to shop at home.
The problem has been pronounced in Texas, where cities and towns near the border rely on Mexican shoppers for sales tax revenue.
“Our sales have fallen around 20%. The lack of Mexican shoppers this weekend was noticeable,” Robert Geller, commercial manager of a chain of stores in Tucson, Arizona, told Efe on Monday.
More broadly, Trump’s moves to undo and redo the trade deals the US has forged with much of the world has been cause for concern for businesses at home and abroad.
His specific proposal to encourage more production in the US – a border-adjusted tax on imports – has stirred trepidation among retailers and small businesses that rely on imported goods to be competitive.
“I am expecting disaster if they actually implement this plan,” Richard Woldenberg, the CEO of Learning Resources, told The Wall Street Journal. Learning Resources, which employs 150 people, sells educational toys like plastic, rainbow-colored kitchen sets and cash registers. Most of the products are made in China.
- REUTERS/Jose Luis Gonzalez
Woldenburg told The Journal that even with a lower corporate tax rate, which has been proposed alongside the tax, the new cost of imports would boost his tax bill by four or five times.
Under the proposal, businesses would not be allowed to deduct the cost of imports, while exported goods would be exempt. According to The Journal:
“Under a border-adjusted tax, a company that imported $200,000 of foreign made toys, spent $100,000 on domestic costs and sold the toys for $350,000, would only be able to deduct the $100,000 in local costs.”
“It would then pay taxes – at a proposed lower tax rate of 20% – on $250,000. So its tax bill would be about $50,000.”
“The same company could currently deduct the costs of imports as well as local expenses, and then pay 35% in taxes on $50,000. That results in a tax bill of about $17,500.”
Proponents of the plan have argued a strengthening US dollar would compensate for changing tax bills, as a stronger dollar would mean companies paid less to import goods.
If that strengthening fails to happen or doesn’t happen fast enough, The Journal notes, big companies that rely on foreign inputs would suffer, as would smaller businesses that typically have less power to negotiate deals or otherwise adjust to cost changes.
- Thomson Reuters
According to standards set out by the US Small Business Association, firms in the wholesale or retail trade count as small businesses if they have 250 or fewer employees. Over 95% of US importers have fewer than 250 employees, according to 2014 Census data cited by The Journal.
The proposed border-adjusted tax has widespread support among GOP lawmakers. Those legislators are looking for ways to make the tax changes beneficial for small businesses, but, according to The Journal, have no plans to carve out an exemption for them.
Some small businesses see a higher barrier for imports as a welcome change, as it would make their products more competitive against imported goods. The proposal has been cause for dread among others.
“We do not have the cash cushion to absorb this kind of tax,” Katherine Gold, whose company, Goldbug Inc., employs over 100 people distributing accessories like children’s shoes, told The Journal. “It would put us out of business if we can’t pass it on immediately.”
The outlook for small businesses in the US has been clouded by another issue Trump has harped on: immigration.
- REUTERS/Daniel Becerril
Draft executive orders from the Trump administration obtained by The Washington Post would restrict all types of immigration, aiming at limiting the number of temporary workers entering the US.
But while Trump has railed against immigrants, Mexicans in particular, who he has said take jobs from US workers, small businesses in the US have struggled to fill their ranks from a dwindling pool of foreign workers.
Research released by the Pew Research Center in November 2015 found that “the overall flow of Mexican immigrants between the two countries is at its smallest since the 1990s, mostly due to a drop in the number of Mexican immigrants coming to the US.”
Data gathered by Mexico found that a million Mexicans and their families left the US for Mexico between 2009 and 2014. Over the same period, US Census data numbers reported an estimated 870,000 Mexicans left their country to come to the US.
There are number of reasons for the outflux, including tighter border controls and Mexicans looking elsewhere for work due to the US’s slow recovery from the Great Recession in 2008.
According to Mexico’s data, however, the majority of the million who returned from the US left of their own volition – 61% cited family reunification as their reason for return.
- REUTERS/Jeff Topping
While the reasons for those immigrants to leave were varied, many US industries have seen the same effect – a smaller pool of labor to draw from.
“Without Mexican labor our industry is at a standstill,” Nelson Braddy Jr., owner of King of Texas Roofing, told The Journal in November. “It’s the worst I have seen in my career.”
King of Texas Roofing, which offered hiring incentives and raised wages twice in the first 11 months of 2016, had 85 roofers on its payroll in November – 80 of whom were Hispanic, mostly from Mexico.
- Bread for the World | Flickr
In 2012, 9% of employees in the leisure and hospitality industry and 12% of those in construction were undocumented immigrants, according to Pew.
In the agriculture industry, the number was 16% – 70% of all field workers are undocumented and the vast majority are Mexican.
The overall number of undocumented immigrants in the US in 2014 – 11.1 million – was unchanged from the number recorded in 2009, down from a peak of 12.2 million in 2007.
While the overall number held stable, the number of undocumented Mexican immigrants has declined, falling from a peak of 6.9 million in 2007 to 5.8 million in 2014.
Those numbers mean that, in the event of mass deportations, the labor pool will be even more constricted.
Though the overall size of the undocumented-immigrant population appears to be holding steady, the number of Mexicans, who have long supplied labor for many US industries, may not recover any time soon.
“Mass migration from Mexico is over,” Pia Orrenius, a senior economist at the Dallas Federal Reserve Bank, who focuses on migration, told The Journal in November. “Low-skilled labor will never be as plentiful again.”