Proposed Mexican tax: Who really pays for the wall in Trump plan?

AROUND THE BLOCK

Commentary

Trump plans 20% tax on Mexican imports to pay for border wall

My non-economist, "simple-minded" analysis looks at unintended consequences

The New York Times reported today that President Trump plans to make Mexico pay for his border wall by imposing a 20 percent tax on all imports into the United States from Mexico, raising billions of dollars that would cover the cost of the new barrier.

The proposal, which Sean Spicer, the White House press secretary, said the president discussed privately with congressional Republicans before giving remarks at a party retreat in Philadelphia, would be a major new economic proposal that could have far-reaching implications for consumers, manufacturers and relations between the two governments.

Far-reaching is probably understating the proposal a bit.

No economist I, but, let me see how this will work:  Goods imported from Mexico face a new 20% tariff; U.S. government collects the 20% to “pay for the wall;” Mexican exporters raise the price of goods by 20% to cover the additional cost; U.S. consumers who buy those goods now pay 20% more; so, Mexico doesn't pay for the wall, the U.S. consumer who buys those goods does.

This simple-minded analysis doesn't even take into account the other side of the story: The fact that Mexico, which is the 2nd largest importer of U.S. goods, might retaliate with a tax of its own.

So, how might that work: Mexico seeks retribution with a retaliatory tax; Mexican consumers buy less of the now more costly U.S. goods; U.S. companies, now selling less to Mexico, are forced to cut production and lay off U.S. workers; U.S. and Mexico go into recession as a result of the trade war; Mexican recession results in massive illegal emigration into U.S. by sea to avoid the wall; U.S. recession is mitigated by uptick in defense spending as U.S. prepares for war with China over South China Sea islands…

Wait, that’s another story.

I've self-described my analysis as "simple-minded." It strikes me when we're talking about Trumpian "policy" (Is that too strong a word? Would Trumpian “impulsiveness” be better?), "simple-minded" might be selling things short!