Border Adjustment Tax

The Trump administration has proposed imposing a 20% tariff on Mexican imports. The levy will be used to fund the building of a 2000-mile boundary wall between the United States and Mexico (Jacobs, Rushe, and Argen 2017, p.1). Floating the import tax follows President Donald Trump's campaign pledges to create a wall between the United States and Mexico to control illicit trafficking and end the flow of drugs from Mexico. According to Sean Spicer, who first made the announcement, the 20% tax on $50 billion will generate taxes amounting to $10 billion per year which is enough to finance the southern wall without other sources. The trade deficit between United State and Mexico is high for Mexico. It has been a Republican policy to reform the current import tax like majority countries. Trump's chief of staff Reince Priebus has cooled the notion of 20% import tax imposition by describing it as one of the many ideas to fund construction of the wall (Jacobs, Rushe and Argen 2017, p.2).
The 20% import tax notion has contributed to worsening of diplomatic ties between the United States and Mexico. Trumped had earlier referred to Mexicans as rapists and blamed Mexico for the influx of illegal drugs trade in the United States (Goldberg 2017 ). The Mexican President Enrique Pena Nieto has since canceled a meeting with President Trump due to Trump’s signing of an executive order for the construction of the wall. Trump’s notion of using import tax draws precedence from President Nixon 10% surcharging tax on Japanese imports in 1971. The Trump administration has placed immigration control as their fundament requirement of National security (Jacobs, Rushe and Argen 2017, p.3).
The 20% tax on Mexican import aims at making the Mexican government pay for construction of the border wall. This has drawn argument on who exactly the tax affects the most. Mexico, Canada, and the United States economies have been intertwined since the signing of the North American Free Trade Agreement (NAFTA) in 1994. Approximately 75% of auto parts assembled in Mexico are manufactured in the United States. Also, 40% of products exported to the United States have US raw material or content ((Jacobs, Rushe and Argen 2017, p.3). According to Mexican finance minister, the 20% tax on Mexican imports will not only affect Mexico but US citizens as well. The tax flotation will increase the prices of Mexican good in US market hence oppressing the American consumer. Politicians across the political divide hold a similar position. For instance, former Republican presidential candidate and Senator John McCain oppose the move, terming it dangerous for American people (Freund 2017, p.64).
Mexico is the United State’s third largest trading partner after Canada and China. The total two-way trade was more than $531 billion in 2015 (Jacobs, Rushe and Argen 2017, p.2). Alteration of these trade partnerships through unreasonable import tax will not only dent the Democratic ties, but it will also be detrimental to NAFTA and the global economy (Fidler 2017, p.9). According to Rubin, the 20% border tax on Mexico makes little or no sense. It is American self-destruction as 80% of Mexican good are created by American demand. Therefore, an increase in tax will lead to increase in products in the American market (Rubin 2017). The border tax imposition will also affect Mexicans heavily, and economists predict they will mostly likely impose countermeasures that will affect the United States. 80% of Mexico’s export income comes from their exports to the United States. Economists predict inflation ranging from 0.5 to 1% and reduce GDP growth of 1 to 1.5% (Bryan 2017).
The tax imposition on Mexican import has not materialized yet. The trump administration has cooled the debate by terming it as one of their options. The trade act of 1974 enables the president to exercise executive powers that can impose a tariff of 15% as a balance of payment only, and the tariffs can only last five months. After the lapse of this period the extension of tariffs can only be extended through congressional approval. As fear looms that Trump could follow these option, Congressional approval of such tariffs is doubtful. The only options that remain for the Trump administration is to fund the construction independently, call off the construction, or engage with Mexico diplomatically to solve the immigration crisis and the illegal drugs menace. If funding from Mexico border tariff matters, President Trump has to prove the existence of a crisis or emergence to stimulate Congressional Legislation.
The impact of border tariffs to Mexico will also be felt by the American taxpayer. It is therefore not an appropriate political or economic strategy to solve the immigration problem. The US economy is greatly intertwined with that of their southern neighbor. Import tariffs will not help to settle the trade deficit since production, retail and consumption of the product in NAFTA countries is cross-border.









References
Bryan, B. (2017). There are a lot of problems with Trump's 20% border tax idea. [online] Business Insider. Available at: http://www.businessinsider.com/problems-with-trumps- 20-mexican-border-tax-idea-2017-1?IR=T [Accessed 18 Apr. 2017].
Fidler, D., 2017. President Trump, Trade Policy, and American Grand Strategy: From Common Advantage to Collective Carnage. Asian journal of WTO and International Health Law and Policy, vol. 12, no.1, pp.2-31.
Freund, C., 2017. Trump's Confrontational Trade Policy. Intereconomics, vol. 52, no. 1, pp.63- 64.
Goldberg, S. et al., 2017. What Trump's 20% Border Tax Would Mean. [online] Bloomberg View. Business Insider. Available at: https://www.bloomberg.com/view/articles/2017- 02-01/what-trump-s-20-border-tax-would-mean [Accessed 18 Apr. 2017].
Jacobs, B., Agren, D. and Rushe, D., 2017. "Trump-Mexico Relations Hit New Low After 20% Border Wall Tax Mooted". [online] The Guardian. Available at: https://www.theguardian.com/world/2017/jan/26/trump-calls-for-20-tax-on-mexican- imports-to-pay-for-border-wall [Accessed 18 Apr. 2017].
Rubin, J., 2017. Economic Self-Destruction, Trump-Style. [online] Washington Post. Available at: https://www.washingtonpost.com/blogs/right-turn/wp/2017/01/27/economic-self- destruction-trump-style/?utm_term=.976e5b3b8c96 [Accessed 18 Apr. 2017].