Trump's proposed border wall and its funding
Trump's proposed border wall between the US and Mexico raises concerns about how it will be funded. During his campaign for president, President Donald Trump pledged to build a physical wall separating the US from Mexico. He proposed that Mexico would cover the expense through a border fee. The President and the Congress are working on the technicalities of funding for its construction, the White House press briefing from January 27, 2017, stated (Northfield, 2016).
Evaluating the proposal to make Mexico pay for the wall
This essay will evaluate this proposal for making Mexico pay for the wall separating the US from Mexico. One of the means to be used for payment is a tax from imports from Mexico coming into the US after carrying out a tax reform. However, imposing the border tax on imports from Mexico will burden the consumer or the US taxpayer and not the companies importing Mexican products, since they will transfer the cost to the final consumer.
Paying for the wall through raising tariffs on imports from Mexico
One major plan for paying for the wall is to raise the tariffs on imports by imposing a 20 percent tax on imports from Mexico. This means that there must be comprehensive reforms on tax in which the current duties will have to be quadrupled to enable payment for the entire wall. This may force the US traders to source for products from other nations and reduce the revenue earned by the government through Mexican tax. The government of Mexico may also respond by getting rid of tax benefits for the US foreign investment, which according to 2013 reports, totaled around $101 billion (Crowley, Valenti, & Komo, 2017).
Utilizing money laundering laws and taxing remittances
The president may also utilize laws that prevent money laundering to stop the Mexicans who work in the United States from sending money to their families back to Mexico. According to Waldman and Waldman (2017), the amount that goes to Mexico is about $25 billion and the president's threat may force Mexico to give in to the demands and contribute to the construction of the wall. Taxing remittances can also be explored as another option, which could be a flat tax on all or a punitive tax on those that are in the US illegally. However, Mexicans that may be affected by the remittances may avoid the wire transfer and go for undocumented third parties to help in transferring the cash to their relatives. Any tax on imports will lead to a reduction in demand for imports from the US consumers leading to fewer dollars being exchanged with foreign countries. This also implies that the rate of the dollar may go up; therefore, the border adjustment may lead to serious economic effects, such as permanent rise in export or reduction in imports. As a result, the ones to pay for the wall will be the American citizens and not the Mexicans, as every cost that may arise from any reforms will be passed to them.
Other proposed options for funding the wall
Another option proposed by the House Republicans is to lower corporation tax by 20 percent from the current 35% to 20%, which will then be based on the place of consumption instead of production (Waldman & Waldman, 2017). In this case, the US will tax imports and not exports. However, this will only raise about $12 billion, as Mexico suffers a trade deficit. In this case, Mexico cannot do much to raise the revenue needed for the wall construction, since any border adjustments will affect trading partners of the US and not Mexico only. Visa and border cross fees may also be increased, which may target nations with bad records on illegal immigration, such as Mexico. If individuals and cars that cross the border pay more crossing fees, more funds will be raised, although it may not be enough. All these plans aim at ensuring Mexico contributes funds to build the wall separating it from the United States.
Impacts on the US economy and consumers
However, raising taxes for imported goods from Mexico will force the US companies involved to raise prices affecting the final consumers. This means that even corporation shareholders will pay for the wall although part of it has to be paid by the final consumers. A state such as Texas will be greatly affected, since it is the number one trading partner for Mexico. It will lead to the loss of many jobs and a reduction in the state tax revenues affecting its economic growth (Hooghe & Marien, 2016). The business owners will be forced to raise prices for their goods by 20 to 30 percent to recover the costs, yet the customers are quite price-conscious. Smaller businesses in the United State will be affected most, since larger companies such as Wal-Mart can outsource their stock from other nations. The 20 percent tariff is a way to force the United States consumers to pay for the wall, since the tax will hike the prices of many consumer goods.
Disadvantages of import-based tax on consumers and trade
Import-based tax has several disadvantages to the consumers who pay for the additional prices. President Obama introduced a 35 percent tariff on tires imported from China in 2009 due to unfair competition (Perry, 2017). Although the tariff increased sales for American tires, it had negative impacts on the citizens, since they paid high prices. In the end, the amount lost in the retail market translated to almost 3,731 job losses (Perry, 2017). This reveals that the tariff that Trump wants to put on Mexican exports will lead to high prices for consumer goods in America and citizens will be the ones to bear the cost of the wall construction. In addition, Mexico and the US depend on one another in various ways, since almost six million jobs for the US citizens depend on trading activities with Mexico. If Trump goes on with his planned building of the border wall, it will restrict trade with Mexico and Americans will have to pay high prices for many things including consumer goods.
Impact on Mexico's economy and trade
Mexico will also suffer, since its economy is reliant on trading activities with the US. In fact, most of the goods it exports go to the United States and a big tariff will make Americans avoid buying Mexican products. This will lead to problems with its balance of trade affecting the economy of the nation. Free trade allows nations to produce goods and services at their lowest production cost. However, if Trump goes on with the plan to introduce a 20 percent tariff on imports from Mexico, he will be contradicting the modern economic law. A tariff such as the one being proposed for building of the war will be a burden for the Americans and not the Mexicans. Although Mexico will be affected, since its exports will go down, it will not pay for the construction of the wall, since the ultimate costs of imported goods that will be highly taxed will be transferred to the US consumers.
References
Crowley, D. F. C., Valenti, J. A., & Komo, M. R. (2017). K&L Gates discusses Trump’s plan to make Mexico pay for the wall. Retrieved from http://clsbluesky.law.columbia.edu/2017/01/25/kl-gates-discusses-trumps-plan-to-make-mexico-pay-for-the-wall/
Hooghe, M., & Marien, S. (2016). The wall with Mexico is a utopian project for Trump’s supporters. Retrieved from http://eprints.lse.ac.uk/66919/
Northfield, R. (2016). How to build Trumps’ wall [Construction for border control]. Engineering & Technology, 11(10), 30-32.
Perry, M. (2017). US steel tariffs: A case study in protectionism, economic losses on net, and legal plunder.
Waldman, P. & Waldman, P. (2017). Opinion: Trump’s secret plan to make Mexico pay for a border wall, revealed. Washington Post. Retrieved from https://www.washingtonpost.com/blogs/plum-line/wp/2017/01/27/trumps-secret-plan-to-make-mexico-pay-for-a-border-wall-revealed/?utm_term=.1ff3b41fd736
