White House floats 20% import tax on Mexican goods to pay for wall, then backtracks

White House spokesman Sean Spicer told the media yesterday that President Trump was considering imposing a 20% "border tax" on Mexican goods to pay for the wall he wants to build along our southern border.


“When you look at the plan that’s taking shape now, using comprehensive tax reform as a means to tax imports from countries that we have a trade deficit from, like Mexico,” Spicer told reporters on the flight back from Trump's address to congressional Republicans in Philadelphia.

“If you tax that $50 billion at 20 percent of imports — which is by the way a practice that 160 other countries do — right now our country’s policy is to tax exports and let imports flow freely in, which is ridiculous. By doing it, that we can do $10 billion a year and easily pay for the wall just through that mechanism alone. That’s really going to provide the funding,” he said.

“This is something that we’ve been in close contact with both houses in moving forward and creating a plan,” Spicer added. “It clearly provides the funding and does so in a way that the American taxpayer is wholly respected.”

It's true that Republicans on Capitol Hill have been looking at some kind of tax or fee on Mexican imports to raise revenue for the wall.  But 20% seemed a lot farther than most lawmakers were prepared to go.  The resulting criticisms from the Hill caused the White House to backtrack some on the proposal.


Hours later, amid an uproar from lawmakers on both sides of the aisle, Spicer said that he was simply putting forward one idea Trump is considering to show how the administration could fund the multibillion-dollar construction of a wall on the US's southern border. Spicer repeatedly said the White House was aiming to be "illustrative" rather than "prescriptive" as he walked back the more definitive comments he made earlier Thursday.

"Part of our goal today was to demonstrate that there is an easy way -- or several ways -- tone is to generate the reviews because the cost of the wall in the big picture is really not that significant," he said. "Imports (are) one way. I just want to be clear that we're not being prescriptive in saying that is the only way nor is the rate prescriptive."

White House chief of staff Reince Priebus also told reporters the White House is considering a "buffet of options" as it considers how to pay for the border wall.

The consternation arises from the belief that such a draconian tariff on Mexican goods will force the government of President Peña-Nieto to retaliate.  Mexico is our third largest trading partner, and the tariff will not only cause the price of Mexican goods and services to skyrocket, but also close valuable markets to Amercan products.  This is especially true of agricultural products that makes up 13% of our trade with our neighbors across the border.

Eventually, American firms will find other markets for their goods.  But in the meantime, the U.S. economy would suffer a significant blow.  And the downturn in the Mexican economy would only cause the illegal alien problem to get worse as unemployed Mexicans head north for our border.

There have been suggestions that instead of Mexican imports, President Trump tax cash remittances that flow from legal and illegal immigrants in the U.S. back to Mexico.  Indeed, most remittances from Mexican nationals in the US that are sent back home are from illegal aliens – more than $26 billion's worth.

But the problem is that these remittances are a profitable part of the business of U.S. banks, and it's unclear if the government can force banks to stem the flow of cash.  Besides, there are workarounds that involve the money going to a third country from the U.S. and then being transferred to Mexico.  It's a more expensive alternative, but would still be cheaper than the tax on remittances planned by the Trump administration. 

What eventually might emerge from Congress is a variety of measures some requiring a presidential signature, others needing congressional approval that would raise most if not all the necessary funds to pay for the wall.  How much it would cost the American consumer or the American taxpayer is unknown.

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