Economies of CaliBaja and the world at risk in a trade war

When it comes to the lessons of the 20th century, the parallels between Donald Trump’s views on public health and the global economy are striking. Even though vaccinations were the single largest factor in increasing life expectancy from 47 to 80 in the developed world — one of civilization’s greatest accomplishments — the president-elect keeps company with people who insist vaccines do more harm than good. Even though the explosion in international trade was among the key factors in gross economic productivity per person increasing more than 600% across the planet from 1900 to 2000 — another of civilization’s greatest accomplishments — Trump likes to depict trade as a zero-sum battlefield in which there are at least as many losers as winners.

This view is completely undercut by the vast success of the job- and wealth-creating “CaliBaja” integrated economic zone, which includes San Diego and Imperial counties and a swath of northern Baja California from Tijuana to Ensenada to Mexicali. A 2022 report from the University of San Diego’s Knauss School of Business found that CaliBaja’s 7 million residents generate a regional gross domestic product of $250 billion. Collaborative efforts to manufacture audio and video devices, medical equipment and semiconductors leads to an average of $200 million in goods moving back and forth across the local border each day.

But will this success story be battered by the president-elect’s plan to impose huge new tariffs on the nations that have the largest “trade deficits” with the U.S., starting with China ($279 billion more exports than imports to the U.S. in 2023) and Mexico ($152 billion)?

Wall Street believes that this is mostly a negotiating tactic. The stock market would be in a free fall if it thought a global trade war looms. Trump’s nominee for treasury secretary, hedge fund tycoon Scott Bessent, is also reassuring. He knows that at a time the U.S. has by far the healthiest economy of any of the world’s richest nations, it also has by far the biggest trade deficit. So much for the zero sum theory.

What’s also of note is that at least some local economists and business leaders cited in a Nov. 14 Union-Tribune article believe that Trump’s real target is China, not Mexico. They think the region might even benefit from a deal the Trump administration cuts with new Mexican President Claudia Sheinbaum that links trade rules to Mexico City’s support for U.S. efforts to sharply limit illegal immigration.

Yet there are many reasons to be deeply worried about what the post-Jan. 20 picture will look like. If Trump follows through with his plan to rapidly deport 11 million-plus immigrants without legal status, the economic fallout will be immense, making existing labor shortages far worse. CaliBaja will not be insulated from the effects. And even if Mexico is excluded as a tariff target, the region won’t escape the sharp inflation spike that statistical models predict if Washington and Beijing follow through on even some of their trade threats.

But will cooler heads prevail, knowing that tariffs fueled the global depression of the 1930s? Or will the wave of populist nationalism seen around the world lead to destructive policies? Here’s praying Wall Street’s optimism is well-founded.

Originally Published: November 29, 2024 at 6:11 PM PST