This past Monday, the Office of the U.S. Trade Representative began a planned hearing on an additional $300 billion tariffs on Chinese imports.
It appears that the outcome of President Trump’s meeting with President Xi Jinping at the G20 summit next week will largely determine whether these tariffs are imposed.
The debate surrounding the impact of President Trump’s tariffs has primarily focused on direct economic consequences, such as changes to real income, consumer prices, and whether China will play by the rules.
However, a new study released this month by authors Melissa Dell, Benjamin Feigenberg, and Kensuke Teshima in The American Economic Review, a peer-reviewed academic journal of economics, sheds light on another issue that should be discussed with respect to President Trump’s tariffs.
They conclude that “Mexican manufacturing job loss induced by competition with China increases cocaine trafficking and violence, particularly in municipalities with transnational criminal organizations.”
In their study, Dell, Feigenberg, and Teshima first demonstrate that rising Chinese imports in the U.S. led to Mexican manufacturing firms being outcompeted with subsequent trade-induced manufacturing job losses. As evidence, they show a strong negative relationship between changes in predicted international competition and percent change in jobs.
These results are largely consistent with the declining market share of Mexico in U.S. imports and the contrasting surge of China. According to U.S. Census data, Mexico contributed around 11 percent of U.S. imports in 2000, while China around 8.2 percent. However, in 2010, Mexico reached roughly 12 percent and China 19 percent, more than doubling its trade share in a decade. (Calculations are based on import figures from the U.S. Census for Mexico, China, and total.)
Some other economic studies, such as those by economists Hale Utar and Luis Torres-Ruiz in 2013, have shown the same results of a negative impact of Chinese competition in the U.S. on Mexican manufacturing employment.
The authors of the study established a relationship between job losses and drug-related homicides from 2007 to 2010: “Back of the envelope calculations suggest that if Chinese imports to the United States had not changed during this period, the steep increase in drug-related homicides in our sample—totaling around 6,000 in 2007 and over 20,000 in 2010—would have been around 27 percent lower.”
Based on these figures, Chinese imports have had a substantial impact in prolonging Mexico’s War on Drugs, which began over a decade ago in 2006.
Not only do the authors conclude that Chinese competition contributed to increasing violence in Mexico, but they also show that Chinese competition led to more drug trafficking.
Employing drug seizures as a proxy for drug trafficking, the authors explain that trade-induced declines in local employment had effects on cocaine seizures that are “positive and statistically significant in municipalities with an initial drug trade presence… and are particularly large in areas with a DTO [drug trafficking organization] presence.”
A significant percentage of illegal drugs in the U.S. come from Mexico: 90 percent of the heroin sold, 90 percent of the cocaine consumed, and nearly 100 percent of the methamphetamine seized all come from Mexico.
By strengthening drug-cartel activity in Mexico, Chinese competition does not just impact Mexico; it also has major ripple effects for increased illegal drug use in the U.S.
Overall, this study acts as a reminder that President Trump’s tariffs on China should not solely be viewed from an economic angle and that there may be more positive angles that we are missing.
The pernicious link between globalization and drug-related crime and trafficking in the world cannot be ignored and the American people must continue to take this into account.
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