President Trump’s Mexico agenda mostly revolves around his obsession with what he calls the “chaos” at the border. How ironic, then, that his proposed solution of tariffs is bound to generate chaos at the border by creating powerful incentives for black market trade.
On Wednesday, the Trump administration announced a slew of tariffs affecting many countries. He has previously threatened steep tariffs on Mexican products, arguing that the punitive move will force Mexico to address the problems caused by drug smuggling into the United States. But a sudden spike in the price of all goods coming from Mexico will only create an opening for criminal organizations to smuggle a wider range of products and expand their power.
We’ve seen this before: International sanctions led Russia to rely on a dark fleet of aging oil tankers sailing without insurance, and crackdowns on electronic money transfers by criminal organizations boosted cryptocurrency. America’s effort to halt the importation of tequila a century ago is also illustrative. During Prohibition, the campaign to stop Mexican spirits from being brought across our southern border unleashed violence, gave rise to what could be considered the first Mexican cartels and made tequila only more popular.
Mr. Trump campaigned heavily on his vow to secure our borders. It is the issue for which he has retained the greatest amount of trust — trust that could be seriously undermined if his tariffs blow up in his face.
At the start of the 20th century, the boundary between the United States and Mexico was largely notional. In that environment, the tequila maker José Cuervo began to forge an empire by focusing on American drinkers — displaying products at the St. Louis World’s Fair, engaging Southern Pacific to construct a railroad line to his distillery in the town of Tequila, and eventually even buying his own trains to penetrate Pancho Villa’s revolutionary lines en route to Texas. After Villa staged a bloody cross-border raid, Gen. John J. Pershing led about 10,000 U.S. troops into Mexico in pursuit.
When Germany offered to ally with Mexico and against the United States, President Woodrow Wilson responded by entering World War I — and by banning commerce with Mexican companies with too much “German influence.” As Cuervo’s nephew and business adviser was the German consul in Guadalajara, his tequila company was banned in 1918. That same year, the first section of border fence was erected and soon, the creation of a border patrol was authorized. Under the guise of preserving grains for food, the manufacture and importation of all hard liquor was also legally banned — and the black market exploded.