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Closing the southern border could cost $2.5 billion a week: Wells Fargo

President Trump threatened to close the U.S.-Mexico border to punish Mexico for the inflow of illegal immigrants coming into the U.S. He has since backed off that threat: on Thursday Trump said he would give Mexico one year to stop the flow of migrants (and illegal drugs) entering the U.S. before imposing tariffs or closing the southern border, caving to pressure from inside his own party and the business community to keep it open.

On Friday, Trump was on his way to look at a section of the border wall being built.

Though it seems unlikely Trump would follow through on this threat, Wells Fargo took a look at the fallout from a potential border closure. It wouldn’t trigger a recession, but Wells Fargo says a prolonged border shutdown could cripple the American auto industry and bring the U.S. economy to its knees by disrupting trade.

Auto industry dependence on Mexican imports

Source: Wells Fargo

In 2018, the U.S. imported over $346 billion of goods from Mexico and exported a total of $265 billion to Mexico. Trade in transportation equipment between both countries was particularly robust. The U.S. brought in $120 billion worth of transportation goods and exported $33 billion south of the border. The majority of the goods the U.S. received from Mexico were auto imports.

Well Fargo’s chief global economist Jay Bryson points out that because $64 billion of these imports were finished vehicles and about $50 billion were auto parts, closing the border could cripple the U.S. car industry. Productions of vehicles in American factories would come to an abrupt stop if car makers couldn’t import those auto parts. Other industries could also be impacted because the imports of computer and electronic products from Mexico was roughly $65 billion last year.

Impact on U.S. labor market

Source: Wells Fargo

The U.S. auto industry has about 1 million people on its payroll, which translates to 0.7% of total payrolls. American computer and electronic product manufacturers hire roughly the same amount of people. If these two industries can’t import auto and computer parts from Mexico, these workers could be out of work, according to Wells Fargo.

Impact on U.S. economy

Source: Wells Fargo

In 2017, the real value added for the auto industry, meaning the difference between the price of a product and the cost of producing it, was close to $130 billion. According to Wells Fargo, that represented 0.7% of all of the real value added to the U.S. economy during that year.

If a border closure leads to the suspension of car production in the U.S., Wells Fargo says the economy would take a hit of roughly $2.5 billion every week.

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