Coronavirus border controls are raising the price of illegal goods and services

InSight Crime reports on an unexpected effect of the coronavirus border controls:

Contacts in China provide Mexican criminal groups with everything from counterfeit luxury goods to chemical precursors for making fentanyl. But with the spread of the coronavirus, shipments from China have dried up and the cartels are feeling the pinch...

And this is not the only possible consequence for Mexico’s cartels. The Jalisco Cartel New Generation (Cartel Jalisco Nueva Generación — CJNG) is reportedly also struggling to source chemical precursors from China to make fentanyl, the synthetic opioid which has caused thousands of deaths in the United States and Mexico alike...

The global lockdown due to the coronavirus appears to be hitting legal and illegal economies equally hard, but it is likely the supply chain troubles of La Unión de Tepito and the CJNG are only the beginning.

Criminal groups across the region will feel the squeeze.

Countries across Latin America are shutting down borders and preventing air travel, which is likely to significantly disrupt criminal economies like drug trafficking, contraband smuggling and human trafficking.

With most aircraft grounded, illicit drug flights that have become a mainstay of drug trafficking in the region may become easier to track.

There are a lot of things going on here, but they all add up to a decrease in supply of illegal drugs. Difficulty in finding precursors to manufacture drugs reduces supply of drugs, as does a higher likelihood of shipments being intercepted. The diagram below illustrates the effect of these changes on the market for illegal drugs. The market was previously in equilibrium, where the price was P0 and the quantity of drugs traded was Q0. The decrease in supply (from S0 to S1) moves the market to a new equilibrium, where the price of drugs has increased to P1, and the quantity of drugs traded has decreased to Q1.

The drug market isn't the only one affected of course (although the effects are similar in terms of the market diagram above). The market for counterfeit goods is mentioned in the quote at the start of this post, but the article also notes:

Yet criminal groups are nothing if not able to find opportunities in a crisis. In Honduras, after the government locked down the borders due to the virus, human traffickers, known as “coyotes,” raised their prices to help people and contraband get in or out of the country illegally, El Diario de Hoy reported.

When goods (or people) become more difficult (more costly) to transport, the equilibrium price of those goods and services will rise. That is the case even when those goods and services are illegal.

[HT: Marginal Revolution]