Trump's Mexico tax is a stupid way to fund a stupid wall
What a disaster
President Trump wasn't kidding: He's going build a wall along America's southern border, and he's going to try to make Mexico pay for it.
After Trump ordered the construction of the border wall on Wednesday, the issue spiraled into a full-blown diplomatic incident. On Thursday, Mexican President Enrique Peña Nieto canceled a scheduled meeting at the White House. Then White House Press Secretary Sean Spicer declared the border wall would be funded with a 20 percent tax on Mexico's exports to the United States. Then he tried to walk it back.
To be abundantly clear: Everything about this is stupid. How stupid? Let us count the ways.
1. A tax on Mexican imports is stupid.
This is wildly ineffective trade policy. One problem with any sort of tariff on our imports is it can raise prices for American consumers. Mexico is our second-largest provider of agricultural products, for example. A border tariff doesn't technically make the Mexican government pay for the wall — it makes Mexican businesses who export to the the U.S. pay for the wall. And they'll probably just pass the cost on to their American customers. The price of avocados will go up. The price of Coronas will go up. The price of cars and airplanes and electronics will go up.
Now, raising consumer prices can be worthwhile if it drives American demand back to American goods and services. But that won't happen with a tariff that targets just one country. American businesses importing cheap Mexican goods won't automatically turn to American suppliers; they'll turn to the next cheapest foreign supplier. So Americans will get the hike in consumer prices with no offsetting boost to jobs and wages.
2. The way Trump handled this was stupid.
It's a hallmark of Trump's governing, uh, "style" that the 20 percent tariff idea came out of left field, and that it wasn't clear what the administration meant by it. Trump and the GOP have also discussed a border adjustment tax, which would aim to remake our trade flows with the entire world, not just Mexico. (Per point 1.) But would the Mexico wall tariff be in addition to the border adjustment tax, or would it just be folded into it? No one seems to have any idea, including Trump's own White House.
The idea immediately set off a fire storm, and within hours administration officials backed off, calling it one possibility in a "buffet of options." It's pretty clear Trump's people threw the border wall tariff idea out there because Trump got angry at Mexico's government and butchered the negotiations. But this kind of tax could set off a trade war with Mexico. More broadly, Trump's tax plans could even upend the World Trade Organization setup, leading to much broader trade war.
Admittedly, I'm not a huge fan of our globalized trade order to begin with. So remaking it isn't ipso facto bad. But it's the sort of thing one should carry out with care and sobriety, as opposed to suddenly igniting because the Mexican president hurt your feelings.
3. Trying to force Mexico to pay for it is stupid.
Assuming the import tax gets implemented, Mexican exporters aren't going to pay a tax to the U.S. government in pesos. They're going to pay it in U.S. dollars. Like all taxes, this will suck some amount of U.S. currency out of circulation. All other things being equal, that's less money out there that could potentially create jobs here in America. (Those Mexican businesses could've used those dollars to buy an American export instead.) This will offset any boost to the American economy we'd get from spending to build the border wall.
Now, this isn't a huge deal: The project will cost something around $15 billion, which is an absolutely piddly sum in the context of America's $18 trillion economy. But it would be better if Congress just borrowed the money rather than trying to bully Mexico into paying for it.
4. The wall itself is stupid.
Undocumented immigrants from Mexico are not "flooding across our borders," as Trump put it. Their population in the U.S. stopped growing back in 2008, and actually fell slightly since. Despite Trump's regular insistence that they're some sort of social menace, undocumented immigrants in America are actually somewhat less likely to commit crimes than the rest of the population. Most studies do agree undocumented immigrants get more in government spending than they pay back in revenues. But again, it's a tiny amount: About $2 billion to $19 billion.
More importantly, though, this is just the wrong way to think about it. Undocumented immigrants are working here, providing goods and services that Americans here buy and benefit from. Furthermore, whenever undocumented immigrants buy groceries, gas, movie tickets, restaurant meals, or whatever, they do it here. That spending is added demand in the American economy, creating jobs for other Americans. If our government is giving more money to the undocumented population than it's taking from them, great! That's even more money they can spend in our economy.
Sure, you could also build a wall to keep them out. But that would make them and us poorer in the long run. It would wreck lots of individual human lives and our diplomatic relationship with Mexico. It would be a physical embodiment of all our xenophobia and mistrust and cruelty.
Trump's wall is worse than dumb. It's going to make America sadder, uglier, and poorer.