Will President Trump be able to make Mexico pay for his “big, beautiful wall”? Over the course of his campaign he offered a variety of ways to dip into pots of Mexican money.
The latest, proposed on Thursday, was a 20 percent tax on imports from Mexico, which total roughly $300 billion in goods and services.
Like other proposals Mr. Trump has floated — impounding remittances of Mexicans working in the United States, or charging Mexicans more for visas — it seems straightforward. But carrying it out would be another matter.
The Trouble With Tariffs
For starters, a 20 percent tax on imports from Mexico would violate the North American Free Trade Agreement and most likely the rules of the World Trade Organization, which frowns on punitive levies imposed arbitrarily on imports from specific countries. (It is hard to tell from the tangle of announcements from Mr. Trump and his advisers whether they are planning a broad new tax regime that would affect all exports and imports. That, too, would most likely invite challenges at the W.T.O.)
Will President Trump be able to make Mexico pay for his “big, beautiful wall”? Over the course of his campaign he offered a variety of ways to dip into pots of Mexican money.
The latest, proposed on Thursday, was a 20 percent tax on imports from Mexico, which total roughly $300 billion in goods and services.
Like other proposals Mr. Trump has floated — impounding remittances of Mexicans working in the United States, or charging Mexicans more for visas — it seems straightforward. But carrying it out would be another matter.
The Trouble With Tariffs
For starters, a 20 percent tax on imports from Mexico would violate the North American Free Trade Agreement and most likely the rules of the World Trade Organization, which frowns on punitive levies imposed arbitrarily on imports from specific countries. (It is hard to tell from the tangle of announcements from Mr. Trump and his advisers whether they are planning a broad new tax regime that would affect all exports and imports. That, too, would most likely invite challenges at the W.T.O.)
Mr. Trump, of course, has also talked about taking the United States out of the global trade accord. But that might seem a bit too drastic just to get Mexico to pay perhaps $20 billion for a wall. It is likely to impose enormous costs on the American and world economies, opening the door for a free-for-all trade war. But if the president did it anyway, the people paying the 20 percent tariff would not be Mexicans, but American consumers. That 2017 Ford Fusion built in Hermosillo, Mexico? It would no longer cost $22,610. It would cost $27,132.
Blocking Money Transfers
So what about the other ideas? The big one Mr. Trump mentioned early on is remittances. Mexico receives about $25 billion a year from Mexicans living abroad, mostly in the United States, in myriad transfers of a few hundred dollars apiece channeled primarily through services like Western Union and MoneyGram.
Mr. Trump originally threatened to simply impound remittances, a matter of dubious legal standing and some logistical complication. Later he suggested a more sophisticated strategy. He would just threaten to change rules under the Patriot Act antiterrorism law to prohibit immigrants who couldn’t prove legal residence from wiring money abroad. Under threat of losing these resources, the reasoning went, the Mexican government would soon cave and offer to pay for the wall.
Remittances are indeed a big deal for Mexico. In a foreign policy speech delivered on Monday, President Enrique Peña Nieto said that ensuring “the free flow of remittances from our compatriots living in the United States” was one of 10 core Mexican objectives in the renegotiation of its relationship with America.
What Mr. Trump seems not to reckon with is that people find a way around barriers like these. Mexicans would come up with other conduits to send the $100 a week that their parents, children or siblings back home rely on to pay the bills. As the Government Accountability Office noted in a report published last year, these sorts of obstacles often have the effect of “pushing remittances out of formal financial systems to less detectable methods.”
Taxing Remittances
Or what about taxing remittances instead of impounding them? As Oklahoma discovered when it briefly imposed a fee on money transfers abroad in 2010, that would drive remittances into some other, untaxed channel. As Monica de Bolle of the Peterson Institute for International Economics notes, it might also reduce remittances, hitting consumption in Mexico and thus, probably, American exports.
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And it might be illegal, too. Kathleen Newland of the Migration Policy Institute, a nonpartisan research group, said that taxing remittances just to Mexico would probably be challenged as discriminatory on the basis of national origin. After all, many people who send remittances are American citizens or legal residents. Taxing remittances only by illegal immigrants would be, to say the least, implausible.
Getting at Other Money
What about charging Mexicans more for visas and border cards? It would take a lot of them to add up to the cost of Mr. Trump’s barrier. What’s more, visa fees are dedicated by statute to finance United States consular activities around the world.
Mr. Trump could probably find some Mexican money somewhere. Twelve million Mexicans live in the United States. Mexican companies have invested nearly $20 billion in the country. There are tons of flows of money between the two. The question is whether Mr. Trump can get at it without breaking the law.
Gordon Hanson of the University of California, San Diego, notes that the two countries have an income tax treaty. That means that Washington agrees to tax Mexican residents subject to United States income tax at a reduced rate.
“I suppose Trump could simply violate this treaty and subject Mexican residents in the United States at a higher rate and call this part of the payment,” he said.
The Ultimate Price
Perhaps none of this matters. Mr. Trump has acknowledged that how Mexico pays might be complicated, which suggests he may be open to calling any flow of money part of this payment. Or as Edward Alden of the Council on Foreign Relations suggests, Mr. Trump may not actually be looking for good ideas to subtly draw money from Mexico to pay for a wall, but instead to prove strength and to humiliate the United States’ southern neighbor.
“Trump is focused on the optics,” he said. “He is not in the market for clever schemes.”
Maybe cutting all aid to Mexico could help serve this purpose. It wouldn’t pay for much. And it would amount to shooting oneself in the foot. What little aid Mexico gets from Washington is mostly destined to help finance Mexico’s efforts to stop migrants from El Salvador, Guatemala and Honduras from traveling across Mexico and into the United States.
But that might not matter anymore. When the dust settles on Mr. Trump’s rearrangement of relations with Mexico, Mexico is unlikely to keep lending a hand. The United States’ most effective tool to curb illegal immigration will be lost. And then his wall might come in handy.
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