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White House Wants Mexico to Pay for Wall by Tax on Imports

White House Wants Mexico to Pay for Wall by Tax on Imports

It’s a freaking tariff.

Earlier today, Mexican President Enrique Peña Nieto canceled a visit to America after President Donald Trump told him to do so if Mexico refuses to pay for the border wall. Despite the cancellation, Trump and his administration has not backed down on making Mexico pay for the wall. Today, Press Secretary Sean Spicer released details how Trump plans to make it happen:

In remarks to reporters, press secretary Sean Spicer said a plan was “taking shape now” to institute a 20% tax on imports from countries with which the U.S. runs a trade deficit, “like Mexico.”

Mr. Spicer later told reporters that this was one of several ideas being considered by the White House to “demonstrate that paying for the wall can be done.” Mr. Trump’s chief of staff, Reince Priebus, said the administration was considering “a buffet of options.”

As The Wall Street Journal pointed out, the plan “is the same ‘border adjustment’ idea of taxing imports and exempting exports that House Republicans have been pushing as part of their tax agenda for 2017.” Others countries that also “have value-added taxes, which are a tax on consumption,” use border adjustments focused “on domestic consumption by taxing imports and making exports tax-free.”

It’s a freaking tariff.

The report continued:

Border adjustment operates like a tax on the trade deficit. The U.S. runs an annual trade deficit with Mexico of about $50 billion. At the proposed new corporate tax rate of 20%, that would generate about $10 billion a year.

Viewed this way, Mexico’s government—which has vowed not to pay for the wall—wouldn’t be paying the costs directly, and the statements from the U.S. administration Thursday are an admission of how unlikely that is. In fact, the costs would be collected by companies selling Mexican-made products in the U.S.

There are still many details to work out as lawmakers write a major tax bill over the next few months. Republican senators have been cautious about backing the House tax plan and Democrats view it as part of an unacceptable package that benefits high-income households too much.

Trump alluded to this in Philadelphia in front of Republicans:

“We’re working on a tax reform bill that will reduce our trade deficits, increase American exports and will generate revenue from Mexico that will pay for the wall if we decide to go that route,” Mr. Trump said.

Without saying “border adjustment,” a term Mr. Trump has criticized, the administration appeared to be moving toward the border adjustment concept, which is a crucial part of the tax plan being pushed by House Speaker Paul Ryan (R., Wis.) and Ways and Means Chairman Kevin Brady (R., Texas).

“Right now our country’s policy is to tax exports and let imports flow freely in, which is ridiculous,” Mr. Spicer said Thursday. “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.”

Sounds an awful like a tariff to me, which hurts the consumer in the end. So not only would the taxpayer end up paying for this wall, but the end result will hurt our pocketbooks. It will hurt us twice:

Such a tax could drive up costs of imported goods, including produce, toys and consumer electronics. However economists say imposing the tax would also drive up the value of the U.S. dollar, which could soften the blow to importers by lowering the pretax cost of the goods and services they bring into the U.S.

The large retailers and oil refiners who have been opposing the House plan doubt that the currency adjustment would happen nearly as neatly as economists predict, and they think the tax plan would force them to raise prices. A sharp shift in the dollar could also unsettle markets, hurt investors with holdings overseas, and change the Federal Reserve’s calculations about interest-rate decisions.

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Comments

The threat alone drove the peso down. Nieto will be under tremendous pressure, but why should WE be their pressure release valve and $ remittance bank? Without a gun (figuratively) to their heads, Mexico’s oligarchy will continue to dump their campesinos, and pass-thru Central American illegals, to stay in power and riches

I would suggest paying for the wall by fining companies that hire illegals. Tyson Foods, a Clinton backer, could pay the whole multibillon amount with the large number they hire. This would also reduce the desire to come here.

With all due respect and appreciation to Mary Chastain, the country had tariffs during the 19th century and grew by leaps and bounds. Were there complaints about how it increased the cost of living? Yes, there were. But the country’s progress at the time is unquestionable.

“Tariffs” are not the same as “Evil.” They are a policy and if the policy is net/net beneficial, you do it.

Really, with billions of people in the world who can work for very little, we have to get real about how America will sustain itself. Fantasy and wishing won’t cut it.

    centrist in reply to CloseTheFed. | January 26, 2017 at 10:47 pm

    Tarrifs are not “net/net beneficial” you economically illiterate moron.

    Milhouse in reply to CloseTheFed. | January 26, 2017 at 11:53 pm

    Tariffs are evil to anyone who can even remotely be called conservative. The whole liberal political movement, which today we call “conservative” (because the socialists stole our name just as they steal everything else) started with the Anti Corn Law League. Tariffs are morally wrong, and economically stupid. They harm the general interest in order to benefit the special interests of domestic producers who can’t or won’t make things as cheaply as foreigners do, so they can only make a profit by forcing the public to buy their overpriced goods.

    There is no room in the big tent for protectionists.

      Barry in reply to Milhouse. | January 27, 2017 at 10:13 pm

      “Tariffs are morally wrong”

      Morally wrong? Are you serious?

      If another country has “morally wrong” tariffs on the goods from our country should we allow their goods in for nothing?

        VaGentleman in reply to Barry. | January 28, 2017 at 3:13 am

        Barry,
        Subsuming ones moral philosophy as a subset of ones political philosophy is SOP for the left. It appears to be the new trend among some on the right.

    Milhouse in reply to CloseTheFed. | January 27, 2017 at 12:04 am

    Oh, and the country grew in the nineteenth century because it had a lot of room to grow. Tariffs stifled that growth, but they weren’t high enough to kill it altogether.

Ugh. Not a fan of tariffs.

But “… if we decide to go that route,” he says.

Looks like this is just a negotiating position.

“It’s a freaking tariff.”

It’s ALSO freaking STOOOOOOPID…!!!

Every barrel of oil, every avacado…every THING that we enjoy from Mexico will cost CONSUMERS MORE.

So much for “the forgotten man”… Der Donald and his billionaire coterie will never feel the pinch.

Mexico will find other market players, and we’ll pay MORE for whatever we find we want badly enough.

Surely, some Mexican products will not find other buyers, and Mexicans will be MORE impoverished, driving them to el norte.

And, like tobacco taxes, it will net close to zip.

Way to go, idiots.

    Frank G in reply to Ragspierre. | January 26, 2017 at 9:36 pm

    *snort* avocados are consumed by even them evil billionaires (I don’t care for them, myself). With the rain, San Diego crops will be available at non-tariff prices. You should buycott them. Further idiocy

      Ragspierre in reply to Frank G. | January 26, 2017 at 9:42 pm

      Your poor, unread moron. The vast majority of avocados are from Mexico.

      Billionaires do not much care for what food prices are…or the price of fuel. Normal people DO.

      snort in my lap…

        That would be because your liberal buds destroyed domestic production of avocados (and lots else) in CA.

        As for oil: drill baby drill. Importing ANY oil from Mexico is purely discretionary.

      mrtoad21 in reply to Frank G. | January 27, 2017 at 8:32 am

      With Feinstein’s “enlightenment” on The California Water Bill and the state coming out of the drought, those Central California Farms (including Avocado farms) will turn into gold.

    tphillip in reply to Ragspierre. | January 26, 2017 at 9:41 pm

    Yes. You are an idiot.

    Oil, if you have already forgotten Econ 101 is fungible. We won’t buy more expensive oil from Mexico; we’ll buy more from another nation, and Mexico will sell their oil to a different country instead of us.

    Your claims of higher prices MAY be true for SOME items, but in the GLOBAL economy if a product is more expensive form one nation and not the other people will buy from the other country. Like oil.

    BTW can you name the top country we buy oil from, and what percentage it is of our oil needs? Hint: It isn’t Mexico. Try looking a bit more north for our #1 oil trading partner. The look East for #2. I hope you can work it out from there.

    Idiot indeed.

      Ragspierre in reply to tphillip. | January 26, 2017 at 9:47 pm

      “Oil, if you have already forgotten Econ 101 is fungible. We won’t buy more expensive oil from Mexico; we’ll buy more from another nation…”

      Like one of the Mid-East producers? WUNDERBAR…!!!

      You’re a flucking idiot. Mexico is our number two oil source.

        It used to be, but now it’s Saudi Arabia. We still get a lot of oil/petroleum (relatively speaking) from Mexico, but the amount has decreased over the past 15 years. We get about 40% from Canada, so they are far and away our top “suppliers.”

        Mexico is, however, one of our main petroleum export destination (#2 at 15%). This could pose a problem in the short term should Mexico decide to decrease that “for some reason.”

        Source: http://www.eia.gov/tools/faqs/faq.cfm?id=727&t=6

          VaGentleman in reply to Fuzzy Slippers. | January 27, 2017 at 4:01 am

          Fuzzy,
          Good points worth expanding.

          MX consumption = 2M bbl / day
          http://www.theglobaleconomy.com/Mexico/oil_consumption/

          MX refinery capacity = 1.2M bbl / day
          https://en.wikipedia.org/wiki/List_of_oil_refineries#Mexico

          This leaves MX almost .8M bbl / day short in refining capacity. Imports from the US make up the difference.
          https://www.eia.gov/dnav/pet/PET_MOVE_EXPC_DC_NUS-NMX_MBBL_M.htm

          Note that we do NOT export crude to MX – just finished goods.
          Note that in Oct-16 we exported 29.525M bbl to MX. Subtract the LP gas from that and divide by 31 and you get ~.83M bbl/day in refined goods.

          MX exports to US about 555k bbl/day of crude and imports from US about 830k bbl/day of finished goods. In effect, they are reducing the cost of the finished goods by providing part of the raw goods. Since we are selling them ~300k bbl/day more than they are selling us, we could effectively gain that 300k by not selling them finished product. We would gain, not lose. If they increase the price of oil, we increase the price of the finished goods they buy from us. And, we can do it selectively, since the relative numbers favor us. If they increase the cost of oil by $2/bbl, we put a $2/bbl tariff on finished product to MX – we gain $600k / day.

          MX is not going to let that happen. MX would find it almost impossible to replace what the US exports. Refined goods are much harder to move than crude, and MX is on the US pipelines so delivery and transportation costs are minimal. MX oil fields are also in decline, so their imports are likely to continue to increase as their economy grows. PEMEX, the state monopoly, suffers from all the ills of a state run business in a corrupt society. They are converting their electric generation from oil to gas, which plays to our gas reserves and pipeline delivery. In short, MX needs us more than we need them.

          More generally (and it fits here so I will put it here rather than in a separate post), in the end, this is all just theater at this stage. Trump doesn’t want a tariff – he wants a wall. This is not about finding a financing vehicle for the US gov’t. He doesn’t want a trade war, he wants the MX gov’t to get serious about solving a problem they perpetuated and from which they profit. After years of lackluster US policy, he is getting their attention. (The Peso crashed today – I bet they noticed.) He’s putting them on notice that he’s serious. The tariff is a negotiating tool – nothing more. No one knows where it will end. He doesn’t really care about the tariff, he cares about the wall. He could put a $1/bbl tariff on refined product going to MX until the wall is paid for and declare victory. And he wouldn’t damage either economy.

          Little heads are popping – left and right. Much weeping and gnashing of teeth. And nothing has happened. There is no tariff. Goods are still moving across the border – duty free. But the self righteous ‘I told you so’ crowd, desperately seeking validation, treats it as a done deal. That’s the real story – just how desperate Trump’s critics are becoming. It’s getting so you can’t slide a tissue paper between the positions of the anti Trump ‘conservatives’ and the anti Trump progressives. They stand shoulder to shoulder in opposition. As though they matter.

          Excellent post, VaGentleman.

          I must say that it has been a treat to watch the actions of a president who has actually functioned-successfully-in the real world. And the teeth-gnashing has been illuminating: The pie-eyed theorists on the right are almost as crippled in functioning in that place as are the ones on the left.

          Fuzzy & VAGent – this Daily Beast article was posted on another post on Mexico.

          http://www.thedailybeast.com/articles/2017/01/08/chaos-in-mexico-during-week-long-gasolinazo-protests.html

          Mexico has not updated their refineries so they import 60% of the refined product! They just put through about a 20% increase in gas prices. It is an interesting article about their problems.

    Welcome back.

Yeah, this is truly bassackwards.

The only way to get Mexico to pay would be to impose a tax on exports to Mexico, not imports.

I realize none of them have a Nobel like Krugman, but really…

    Frank G in reply to Daiwa. | January 26, 2017 at 9:38 pm

    making American exports more expensive. Genius. Krugman, is that you?

      Daiwa in reply to Frank G. | January 26, 2017 at 9:54 pm

      I don’t agree that import/export is the appropriate vehicle for raising the money. Of the two, taxing imports taxes us directly & we pay for the wall. Taxing exports, also dumb, has the ‘advantage’ of not costing taxpayers directly – how it would net out is much harder to guess; thinking we’d need to put Michael Mann on it to know.

4th armored div | January 26, 2017 at 9:24 pm

TINSTAAFL

open borders for south and central american economic refugees.

If the conservatives (and i am one) are anti tariff with countries that tariff USA goods, what is the point of this election ?

He’s negotiating, wait and see what is final first. I have already seen details where Obama managed to get Canada to pay for a bridge…

    davod in reply to scfanjl. | January 27, 2017 at 5:03 am

    Not the bridge to nowhere in Alaska?

      snopercod in reply to davod. | January 27, 2017 at 8:03 am

      This it totally off topic, but the term “bridge to nowhere” really pisses me off. It’s yet another example of the right adopting the Alinsky premises of the left. That bridge was intended to replace a ferry connecting the town of Ketchikan, AK with Ketchikan International Airport (as well as 50 residents). who lived across the river on Gravina island. It was a worthy project no different than one of the bridges connecting Manhattan to the mainland, only on a smaller scale.

        Semper Why in reply to snopercod. | January 27, 2017 at 12:45 pm

        If it was such a small scale,then perhaps Alaska should have paid for it instead of Federal dollars.

          On the “other hand”, if other states get monies, shouldn’t Alaska be allowed to request some of the funds. Their citizens have paid gas taxes, either in Alaska or when they are traveling.

          See West Virginia and Byrd for getting an excess of federal funds.

          My state has I 35 (north south), I 40 (east west) and I 44 (SW to NE). It is possible that a car or truck could fill up their tanks at the station right before the state border and get across the state without filling up again. That means the state did not get “credit” for submitting the federal gas tax, but the road was still traveled. The damage to the road and bridges is still occurring, so we do need some of the common funds.

          While waiting for federal matching funds, the major roads are taken care of and the rural roads and bridges are skipped until they collapse.

Of course it’s a tariff. Tariffs are probably the least disruptive way a government can exert any control on a basically free market. Trade deficits are a legitimate concern to a government when trying to manage a national economy. And unfortunately once you’ve introduced anything which affects trade and commerce—taxes, laws concerning merchantability, fraud, pollution, safety and sanitation, etc—you no longer have entirely free trade, and some controls may be necessary to prevent things from going all to hell.

However, that’s not the problem they’re trying to address here. The problem is paying for the wall. And trade deficits have nothing to do with it. Cute euphemisms like “border adjustment” don’t make the problem go away, either.

Raising the price of Mexican imports just isn’t the same thing as making Mexico pay for anything. It would decrease the quantity of Mexican exports to the US, which would hurt Mexico’s revenues, but only pretzel logic could turn that into Mexico “paying” the US for anything. Money not paid to Mexico for goods is not the same as Mexico paying the US for goods and labor in the US, mainly because the money paid to Mexico for trade goods is paid by customers, not by the US government. So, a tariff makes Americans pay for the wall, instead of them buying things from Mexico with that same money.

In any event, the trade deficit with Mexico isn’t really that awful; as of 2015, the US shipped $236B in goods to Mexico annually, and imported $295B. The deficit was therefore $58B; not one of America’s biggest problems.

    The US has tremendous leverage over the economy of Mexico. 80% of Mexico’s exports go to the US. If the US reduces those imports by 20% this is a big hit for the Mexican economy.

What needs to happen is for Trump to retract his stupid promise, now, early on, while he has the political juice to do it. He needn’t explain it or justify it. His supporters will do that.

So basically Trump told Mexico to pay for the wall or he’s going to hit them with a tariff that is actually a tax on his own people and lots of Americans are cheering him on?

And this is all to cover a boast he made on the campaign trail.

Mexican nationals remit 26 billion dollars from the US to Mexico each year. Just impose a 5% tax on those remittances, which would raise about a billion a year. Keep it in place until the wall is paid for. The only thing such a tax would discourage is the transfer of cash from the US to Mexico, which I think would be a good thing. Problem solved.

The “hidden” economy that exports hundreds of million of dollars (or more) from illegals .. and legal… aliens helps keep Mexico afloat since 1/2 of the population is below the poverty line. The US decompresses the burden on Mexico. “Trade deficits” are superficial. The USA is not spelled “sap”.

Actually, a tariff will probably not increase costs to US consumers, over the long run. Here is how this works.

If US consumers can buy imports more cheaply than they can purchase domestically produced goods, then this is a benefit for the consumer. If the consumer has a job, that is. If the balance of trade is such that workers lose manufacturing jobs, then those consumers can not afford to buy the imports. Some way has to be found to keep these workers employed. Back in the 1990s, the argument for NAFTA was that these manufacturing workers would be retrained and would secure service jobs. However, except for certain very specialized service jobs, the rest of the world does not need Americans, who are very highly paid, doing those jobs. So what happened? The number of unemployed, in the US workforce, increased. Many of the jobs that were available were minimum wage jobs, many of which were part time.

Now, what would happen if those minimum wage, part-time workers secured full-time jobs which paid much more than minimum wage producing the same consumer goods that these workers bought from overseas sources? Remember, the US accounts for 27% of the consumer goods market in the entire world. We would be our own best customers.

Then there is oil, natural gas and coal. The US is lousy with all three. Not to mention our dedicated trading partner, which enjoys a similar standard of living, Canada. Pipe in the oil. We already have an extensive network of NG pipelines, with several termini on the Canadian border. Coal is plentiful

On to food items. IN 2016, the US exported $108 billion worth of agricultural products [food]. In the same year, we imported $100 billion dollars worth of agricultural products. If these imports are replaced by exports remaining in the US, consumer costs should not rise appreciably. This would be a short term solution. But, as not every country would be subjected to the import tariffs, the US would still enjoy a trade surplus in this area.

Finally, we have to look at the level of critical items which are imported to the US. While there are some, a large percentage of our imports are consumer goods such as clothing and electronics. And, US consumers can reduce their consumption of these luxury goods to save money.

And, of course, the US can cut trade deals with other countries which will reduce tariffs and benefit both. Considering that the US accounts for 27% of the WORLD consumer market, such deals should not be difficult to broker. In fact, countries should be lining up for access to the US market.

So, except for US financial houses, which may have a substantial investment in businesses outside the US, which rely upon trade with the US to make a profit, the US economy should not be negatively impacted to any great extent, in the short term.

    snopercod in reply to Mac45. | January 27, 2017 at 8:15 am

    Finally (!) someone has noticed that American consumers can’t consume if they don’t have jobs. I am so sick of people holding up David Ricardo’s collectivist theory of “Comparative Advantage” as if it were a crucifix; His simplistic theory proposed that since Portugal could produce wine cheaper than England, and England could produce wheat cheaper than Portugal, it would be mutually advantageous to let Portugal produce the wine and England produce the wheat.

    That theory reminds me a lot of the Global Warming hoax; It works perfectly in the ivory towers of academia, but totally breaks down in the real world. Ricardo’s theory fails to include a long list of important factors like human behavior, social stability, intellectual property, exchange rates, government intervention, the ability to print “capital”, reciprocity, transportation costs, interest rates, mobility of the means of production, military preparedness, and more. But hey, the math works perfectly as long as one has a simple mind.

      Ragspierre in reply to snopercod. | January 27, 2017 at 11:05 am

      First, there’s no “theory of comparative advantage”, you moron.

      There is the LAW Of Comparative Advantage that enjoys that status because it, like the LAW Of Supply And Demand, is so completely demonstrated.

      It is simply bizarre that you stupidly call it a “collectivist” notion. It has nothing to do with compulsion, and would work in the absence of government. Indeed, it simply DOES work when people are left alone to trade as they choose to do. It works within nations and between nations.

      It NEVER considers employment. It ONLY demonstrates the advantage of trade between people. If you’re inclined to ASSume that it has ANY effect on employment, the only rational assumption would be that it fosters HIGHER employment because it ENRICHES EVERY population where it is allowed.

      Again, WHERE are you reading this bullshit? Who is packing this crap in your skull.

        The Law of Comparative Advantage, with regard to trade, assumes that both producers are relatively equal, economically. However, when one is significantly richer, this means that it can not compete, in the production of goods, with significantly poorer producers. So, in a free trade situation, the richer producer has to either adsorb the poorer or use its increased consumption as leverage. Otherwise, the richer producer will collapse, economically.

        This is the situation that the US is in today. Everything which it produces can be produced elsewhere more cheaply. But, because the US is THE consumer market in the world, these products are destined for the US consumer market. As production of real goods is moved out of the US, the consumer base drops as unemployment rises and wages drop.

        When NAFTA was initially signed, it was acknowledged that manufacturing jobs would move out of the US. The theory was that the works displaced from the manufacturing work force would become part of a service work force which, it was touted, would have a comparable income. However, lower incomes were, and still are, the norm in service industries. See the problem?

          Ragspierre in reply to Mac45. | January 27, 2017 at 1:08 pm

          “The Law of Comparative Advantage, with regard to trade, assumes that both producers are relatively equal, economically.”

          No. Again, this is just bullshit. I makes NO such assumption.

          Indeed, it has been DEMONSTRATED that your nonsense does not apply in the real world.

          Where did YOU get that crap?

          OF COURSE some manufacturing jobs would “leave the country”. SOME whole business would never survive in a thriving market economy! Ever try to buy a Zenith TV lately?

          AND that would have simply happened, with or without NAFTA or any other trade agreement. Unless, like the EU, we tried to make ourselves a “fortress economy”.

          BTW, jobs in the import/export industry are pretty good jobs.

          Screwing with free trade kill a lot of jobs.

          See the problem?

          Mac45 in reply to Mac45. | January 27, 2017 at 1:39 pm

          I’m correct, sorry. Let’s take a look at manufacturing jobs leaving the country, for starters. When these jobs leave, the workers who occupied those jobs have to find other employment. Otherwise they not only represent a reduction in the buying power of the country, but they become a drain on the rest of the national economy. And, if the economy of the country does not have jobs available at comparable wage levels, the whole economy stagnates or, worse, founders. In the short term, lower costs for the working members of the original nation and increased standard of living for the emerging nation may seen to be advantages, but, in the long run, both economies will stagnate. That is why consumer nations control imports. If they do not, their economy will be destroyed, as being a consumer requires a relatively high level of production to sustain the consumption.

          Now, comparative advantage works, to a limited degree, within the United States usually because of geographical differences. The Plains states are more conducive to grain production, the coastal areas to fishing and specific areas [very often mountainous regions] to the mining of certain minerals, for example. However, economic protectionism is still required. It usually takes the form of lower taxes for businesses within the given state.

          Whenever two states are direct competitors, for a product or service which they both need, some kind of protectionism will be used to aid the individual country

          Ragspierre in reply to Mac45. | January 27, 2017 at 1:51 pm

          “And, if the economy of the country does not have jobs available at comparable wage levels, the whole economy stagnates or, worse, founders.”

          More consummate bullshit in a lunch box…!!!

          IF, for instance, union steel workers and auto workers (the “Princes Of Labor”) are grossly over-paid for what they do by lazy management, your thesis is that the “economy stagnates or, worse, founders” if those wage levels are not somehow maintained in a market economy.

          Seriously, you cannot be this stupid. I mean…really.

          Ragspierre in reply to Mac45. | January 27, 2017 at 1:56 pm

          “Now, comparative advantage works, to a limited degree, within the United States usually because of geographical differences. The Plains states are more conducive to grain production, the coastal areas to fishing and specific areas [very often mountainous regions] to the mining of certain minerals, for example. However, economic protectionism is still required. It usually takes the form of lower taxes for businesses within the given state.”

          Ah, MORE TRANSCENDING ECONOMIC STOOOOOOOOOPID…!!!

          First, you start with an (inapposite) example of ABSOLUTE ADVANTAGE.

          NEXT, you make the AMAZING argument that TAXES are required to level the playing field between states.

          I’m simply appalled at the stupid here.

      Ragspierre in reply to snopercod. | January 27, 2017 at 11:12 am

      You don’t even comprehend the LAW. What you wrote describes the LAW Of Absolute Advantage, which is much more intuitive and easy for even idiots to get their heads around.

      https://www.bing.com/search?q=LAW+Of+Absolute+Advantage&pc=MOZI&form=MOZCON

        tyates in reply to Ragspierre. | January 27, 2017 at 4:42 pm

        I have to agree with Rags on this one – I’m not sure where you went to school but the law of comparative advantage is pretty basic and you’re saying exactly the opposite. You may be thinking of competitive advantage which is strategy rather than economics.

        And seriously, do you really want a country full of people who are happy to snap circuit boards in Roombas all day? The only reason we’re interested in crappy manufacturing jobs is because our economy is misfiring on so many cylinders. The entire educational system is broken for starters.

        One of my former professors, Bruce Kogut, is a pioneer of the knowledge-based view of the firm which throws all the Michael Porter resource-based crap out the window. Knowledge, which includes culture and social networks, is firm’s most valuable asset and is very difficult to accumulate, copy, and transfer. It’s the kind of analysis which explains why finance and media are still in New York & Hollywood despite high taxes, costs of living, etc, or why its always easier to get a job if you already have one.

        If knowledge is a factor in keeping jobs, then the flip side is that the jobs that are moving are the ones with low or zero accumulated knowledge. China, Mexico, and other countries get very little out of having those kinds of jobs, and the idea of them competing against us is like a printer company competing with a book publisher. It’s totally overblown.

        There are many reasons I’m not in favor of offshore outsourcing – one being that they do a really crappy job of snapping chips into Roombas – but I’ve never fallen into the trap of thinking those kinds of low-knowledge low-wage jobs are valuable or strategic in any way. Americans were born to think, create, innovate, solve problems, etc.

This is not Mexico paying for anything, it’s a tax on American consumers. Every cent is paid by Americans, not Mexicans. As Daiwa wrote, the only way to make Mexicans pay a tariff is to impose it on exports, not imports. Which is a dumb idea, of course, but it’s the only way to achieve anything even close to what Trump is claiming. But even that wouldn’t be paid by Mexico, it’d be paid by individual Mexicans, which is not the same thing at all.

Oh, and border adjustments are not the same thing either; they’re simply collecting the same sales tax on imports that is collected on domestic products. If you’re going to have a consumption tax you have to impose it equally on domestic and imported products, and obviously the imports can only be taxed when they come in, not earlier.

    Tom Servo in reply to Milhouse. | January 27, 2017 at 12:25 am

    bingo.

    Hmm… isn’t the tax system also used to try to change behavior? Tobacco tax, liquor taxes, plastic bag tax, soda tax, etc. Likewise, the elimination of taxes is also used to impact behavior. Why do states have tax-free weekends right before school starts? To drive up local sales, of course! Why are they talking about an internet tax? Because not having one impacts the local revenues.

    Philadelphia just imposed a tax on soda(1.5 cents per ounce), but it was put on at the distributor level. The mayor expressed outrage that the stores would pass the cost onto the consumer. But, didn’t the city want to change behavior? How would the consumer know they were not supposed to drink that soda unless they were punished in some way.

    If we wanted to maintain trade in certain items, food for example, couldn’t the tax,tariff,duty, or whatever be zero? If we wanted to change behavior and reduce the usage of a different product, wouldn’t the tax be higher on that product? Who says that the rate has to be the same for every product?

    Of course, what politicians have discovered is that by increasing the cost of something through taxation will result in a change of behavior and in the end, a reduction of tax revenues. Imposing tariffs may eventually impact the balance of trade between countries but it does hurt the citizens on both sides. We pay more for a while until we stop the behavior and they end up sending less to us.

    However, a tax on money sent back to Mexico will have a faster impact on behavior.

      Liz in reply to Liz. | January 27, 2017 at 12:40 pm

      Here is an article concerning increasing the gas tax to change behavior – drive less, get more fuel efficient cars, etc.

      https://pjmedia.com/news-and-politics/2017/01/26/larry-summers-raise-the-national-gasoline-tax/

      So I drive less, they get less tax revenue from me. I switch to a more efficient car, less tax from me. Or instead of going to the store, I’ll order from Amazon and let them deliver everything. While I’m not driving, someone else is, but they pass along the cost with a fuel surcharge. And, my city and state loses out on the sales tax.

      Taxes changes behaviors.

      Henry Hawkins in reply to Liz. | January 27, 2017 at 1:21 pm

      How long do you suppose it will take for illegals to evade the tax simply by sending money back another way? How shall we defend the air, land, internet, and underground as off-the-grid venues for moving money when the border is a river of illegal drugs?

      Taxing remittances won’t work. Such a new tax will have a ‘begin’ date months into the future, by which time a whole new black market will have already evolved – being smugglers of money, along with the existing smuggling of drugs and illegals. They will have already gotten around it before it even begins. I’ve thought of half a dozen ways to move money to Mexico without the IRS knowing just while sitting here typing. As a young man I had experience doing this precise thing – smuggling illegal stuff in and out of Mexico.

        Ragspierre in reply to Henry Hawkins. | January 27, 2017 at 1:42 pm

        It wouldn’t require any kind of black market.

        While it’s illegal to send money to other countries via the postal systemssssss, who’s prepared to stop mail and inspect all of it, or any meaningful fraction?

        Wire transfer to Ireland could easily become all the rage. Who’s going to regulate and police that?

        People here could buy anything (ie, cars, trucks, etc.) that would sell well across the border, and there would be no way to police that.

        The whole idea is nuts.

        Taxes change behaviors – a lot of people under report income or are creative with deductions. I’m sure that for every dollar that goes through a system that could track & tax, there are already many other methods of getting the funds to the people who need it. Actually, I suspect that the people who are here to support their families send the money through honest channels. The people who participate in drug, sex trade and other illegal activities get their money across in other creative ways.

        So, what do we do? Perhaps build a wall to increase our security? And, forget about getting Mexico to pay for it either directly or through tariffs? Start throwing out the criminal portion of illegal aliens and then decide what to do with the rest of them?

        I saw an article that suggests that the wall will cost $120 per household. Even if that is low-ball, I think the costs that we (all the states) have paid in health care, education, security, etc related to illegal aliens plus the costs associated with the drug and sex trade problems probably is far greater than that amount.

        So, should we absorb it and reap the “benefit” through a theoretical decrease in these other costs? And yes, there are more cost/benefit factors to be considered. It was not an all-inclusive list.

        There are a lot of people from Central and South America, Africa, Asia that illegally enter the US through the southern border. Perhaps we should decrease the amount of foreign aid that we send everywhere. A lot of it is wasted, going to the corrupt governments and not the people who need the funds. There are plenty of NGOs that do a better job than USAID. And the better NGOs do not accept US Government funding. I like this concept of deceasing foreign aid.

        So everyone – what solutions do you have to this problem? How do we get a wall & increased security? Someone on another LI post suggested that President Trump should just take back his promise for Mexico to pay and get it done.

          Henry Hawkins in reply to Liz. | January 27, 2017 at 8:01 pm

          “Actually, I suspect that the people who are here to support their families send the money through honest channels.”

          A practice that will stop the minute a tax is imposed. Yes, taxes can change behavior. It can impel more illegal behavior, which is exactly what will happen with a remittance tax.

So, any increase in cost to producers is considered a direct tax to consumers. This is why Mexico exports its population to America, to depress labor costs, shift medical costs, and transfer social costs, in order to maintain an illusion of lower prices (and maximum profits). This is why we subsidize a large part of our population, in order to maintain an illusion of sustainability (and Democratic leverage). This is not capitalism. This is a sophisticated monopoly and practices maintained through labor, environmental, and social differentials, and redistributive change. This explains the acutely phobic reaction to removal of party favorites that maintain the status quo with a left, right, or center flavor.

1. It is only the beginning. Anyone willing to bet that Mexico will pick up part of the tab just to avoid such a tariff.

2. Assuming a car coming in from Mexico is going to cost more, people are more likely to to buy a car not coming from Mexico. In order to compete, the manufacturer is going to reduce the price somewhat. To compensate for loses, the manufacturer is going to somehow reduce costs, most likely in Mexico.So Mexico in part will be paying.

3. No it won’t pay for a wall but as I said: it is a start.

I would much prefer to see a tax on remittances, a border crossing fee, and additional fees on non-US citizen consular services, e.g., visa issuance.

don’t tax imports… tax the money being sent BACK to Mexico and points south.

that keeps the $$ here and provides incentive for them to self-deport.

We have a border tax now – but its on exports. The rate is 35% minus the corporate tax rate of the country where the product is sold. The result of that tax is that every corporation with significant exports moves its factory offshore (Mexico or China for the most part).

Those factories don’t just export to every other country on the planet, they also re-import goods designed in the US by US corporations, but built with foreign labor, back to the US.

What Congressional R’s and Trump are doing is reversing this. They are eliminating the export tax and creating a 20% import tax instead. They are also dropping the US corporate tax rate from 35% to 15-20% (still being debated), and declaring a “tax holiday” to allow some $2.6 Trillion in profits being held overseas to come back home (result of the current idiotic tax structure).

Current situation: You and I make similar products, same quality and cost to produce, your factory is in Ohio, mine is a wholly owned subsidiary in Mexico. We’re competing to sell in a country in Europe with a 10% tax rate – your product has a price tag 25% higher than mine because of the US double-taxing exports. Can you compete? No. Not unless you move your factory outside the US. Also, I can re-import my US designed product built in Mexico and sell it for probably less than yours due to lower labor costs. Oh, and I can never bring my profits back to the US or I have to pay 25% of it as taxes.

New situation, if the BAT passes: You and I export to anywhere in the world and pay just the corporate tax rate of the nation of sale (ie. you are no longer double taxed on your US exports). And, if I re-import my product to the US it will cost 20% more than yours does. Can I compete? No. Not unless I move my factory back to the US. Oh, and if I keep my factory in Mexico, I can bring my profits back to the US and spend/invest that money here because I will no longer be double taxed.

This simultaneously eliminates the #1 reason why every US corporation with significant overseas sales sets up a foreign subsidiary to manufacture their exports AND creates an incentive for companies selling products in the US to manufacture that product in the US.

Just talking about this, not having passed the legislation yet, has resulted in investment commitments from a wide variety of major corporations to build/expand production in the US. Current estimate is 1.3 million new jobs just from the companies that have so far announced their plans.

Oh yeah, fixes our massive negative trade balance with every country too.

Why not tax the money that is sent back to Mexico; all of it, cooperate, citizens and illegals?

At it’s heart, Ricardo’s theory of “comparative advantage” is no different than Stalin’s “You can’t make an omelet without breaking a few eggs.” Both Stalin and Ricardo ignore that those “eggs” are the lives of men and women, and those “few” amount to tens of millions of displaced American workers. To me it’s astounding that a collectivist theory is being accepted as “free market”, but I guess not much surprises me any more.

    Ragspierre in reply to snopercod. | January 27, 2017 at 8:33 am

    That’s another of your stunningly stupid statements that will live in memeory.

    The two things are categorically different…could not possibly be MORE different.

    I’d seriously like to know WTF you are reading that promotes that kind of outrageous bullshit.

    Ragspierre in reply to snopercod. | January 27, 2017 at 9:25 am

    I’m dead serious. One of you economic idiots step up and tell us where you are reading this mindless bilge.

By the way, they are taking bids on building the wall right away. Must be made from all American products.

Henry Hawkins | January 27, 2017 at 1:12 pm

How long do you suppose it will take for illegals to evade the tax simply by sending money back in another way? It’s not like they respect American law.

    Ragspierre in reply to Henry Hawkins. | January 27, 2017 at 1:33 pm

    Remember when T-rump was going to “embargo” remittances?

    Good times…good times…!!!

    The problemsssssss here are manifold, and you mention one.

    Another is that most illegals in the US are not Mexicans, according to some stuff showing they’re leaving more than coming.

    But never mind. The trope is the trope. And it really does appeal to some for reasons known (if at all) only to them.

      What is your plan?

      If you have written it up in another LI post, please include the link and I’ll go back to it.

        Ragspierre in reply to Liz. | January 27, 2017 at 3:44 pm

        My “plan” WRT what…???

          Since the post is about funding the border wall along our southern border, I thought my question would be somewhat obvious.

          OK – what are your ideas with respect to funding security along the southern border.

          Or, perhaps I missed one of your comments an your are not in favor of securing the border. If so, I apologize for the question.

      Ragspierre in reply to Ragspierre. | January 27, 2017 at 4:04 pm

      You may have noticed that the thread has diverted to a LOT more than paying for our southern security.

      That said, our security is our business…literally.

      Ergo, we should be paying for the security of our southern border in the same light as we pay for our northern, western, and eastern security.

      The idea that the “wall” is a T-rumpian notion is a lie. People like Jonah Goldberg had called for a southern barrier over a decade ago. You won’t find the T-rump suckers giving him props for that.

      I’ve written often here that a “wall” is not simply not a good idea, but is actually a really shitty idea. You can’t…for instance…see who’s coming through a wall. You can through a fence.

      And, as Patton noted, “Fixed fortifications are a monument to the stupidity of man”. Motivated people will always find ways to defeat the stupid wall.

      So, you take away the motivation. You remove the gradient.

      Nobody builds a dam in a lake. (Although an idiot named Berri will argue with that like he argues with any obvious fact.) You take away the reasons to come here, which is almost “without cost” compared to building a “wall”.

I strongly support this policy. Let me run through all the negatives first and the single positive.

The bad:
1. Its a political gift to Mexico – they can blame all of their future economic woes on us, like Castro did for decades.
2. At least half the money is raised from the US consumer.
3. It probably won’t raise as much money as expected – consumers can shift buying patterns and companies can move sourcing, production, etc.
4. It won’t end here – expect Mexico to respond with tariffs of their own on goods like films, software, autos, etc. And expect all of those tariffs to stay in place decades after the Wall is built.

The good:
The US should only offer true free trade (0% tariffs) to our allies. And no, not “trading partners”, but real allies that have democratically elected governments, individual rights, and modern economies, and would aid us immediately and unquestionably if asked. The trading practices that we have now are simply wrong economically, strategically, militarily, politically, and morally, and this is a small, but important step in changing that.

    Ragspierre in reply to tyates. | January 28, 2017 at 8:32 am

    Normally, we agree on a lot, BUT…

    your final paragraph is just silly. For one thing, there is no such nation. Our very best allies would not…and should not…”aid us immediately and unquestioning if asked”.

    Tariffs are a TOTALLY crappy and bassackwards means of trying to compel others to conform to American interests or norms. All they do is impose costs on our own people, as well as the people we should be trading with.

    ONE reason…and a far more important reason than labor PRICE (not remotely the same as labor cost per unit of output)…Mexico enjoys an advantage in automotive production is that Mexico is by FAR more “free trade” than is the US. They don’t have tariffs to nearly the extent we do. They freely trade with many nations, and THAT makes a car or components MUCH less expensive.

    We manufacture MANY things at LEAST cost per unit because our people are the MOST productive in the world for those things we produce. They are that because of capital investments.

    The stupid assertion made up-thread that “any nation can produce anything cheaper than we can” is given the lie by the facts. We are manufacturing MORE than ever, just like we are producing more food than ever before.

      VaGentleman in reply to Ragspierre. | January 28, 2017 at 9:11 am

      Mexican free trade.

      Importing to MX vs US. Note that MX has a higher average import duty and lower threshold where duty rates start.

      US import duties summary

      https://www.dutycalculator.com/country-guides/Import-duty-taxes-when-importing-into-the-United-States/

      “Overview

      Import duty and taxes are due when importing goods into the United States whether by a private individual or a commercial entity. The valuation method is FOB (Free on Board), which means that the import duty and taxes payable are calculated exclusively on the value of the imported goods. However, some duties are based part in value and part in quantity. In addition to duty, imports may be subject to a Merchandise Processing Fee, and in some cases to sales tax, and Federal Excise Tax.

      Duty Rates

      Duty rates in the U.S. can be ad valorem (as a percentage of value) or specific (dollars/cents per unit). Duty rates vary from 0% to 37.5%, with the average duty rate being 5.63%. Some goods are not subject to duty (e.g. some electronic products, or original paintings and antiques over 100 years old).

      Minimum thresholds

      Duty and taxes are not charged if the FOB is up to USD 800.”

      Mexico import duties summary.

      https://www.dutycalculator.com/country-guides/Import-duty-taxes-when-importing-into-Mexico/

      “Overview

      Import duty and taxes are due when importing goods into Mexico whether by a private individual or a commercial entity. The valuation method is CIF (Cost, Insurance and Freight), which means that the import duty and taxes payable are calculated on the complete shipping value, which includes the cost of the imported goods, the cost of freight, and the cost of insurance. However, the duties of some products can be charged based on a unit of measure. In addition to duty, imports are also subject to sales tax, customs processing fee (DTA), and in some cases to excise.

      Duty Rates

      Duty rates in Mexico vary from 0% to 140.4%, with the average duty rate at 13.97%. Some products can be imported free of duty (e.g. laptops, and other electronic products).

      Minimum thresholds

      Imports by post with a FOB value up to US$300 are free from all duties and taxes.

      Imports by courier with a FOB value up to US$50 are free from all duties and taxes.”

        Ragspierre in reply to VaGentleman. | January 28, 2017 at 9:43 am

        How interesting that your source is Pitney-Bowes, which is concerned with postal and courier rates exclusively.

        MORE interesting is that you very selectively left out this portion…

        Preferential duty rates

        Mexico has signed free trade agreements with a number of countries. To be entitled to preferential tariff treatment, a good must meet the “originating” criteria as set out on the Rules of Origin of individual FTAs. A certificate of origin is required upon importation for preferential duty rates to apply.

        NB: Imports by post or courier do not automatically benefit from preferential tariff treatment as they clear customs through a simplified process. For preferential tariff treatment to apply a customs broker has to be assigned, and the import has to be cleared throught [sic] the regular customs clearance process.

      tyates in reply to Ragspierre. | January 29, 2017 at 8:47 am

      Trade is probably the most powerful force in the world, and it isn’t just economic, it’s social – people travel back and forth, share information, work through common problems, make commitments, etc. Over time it binds countries together.

      In my view, free trade is a perk for allies only. Not necessarily client states, but at least a common defense pact. If you’re willing to put your soldiers lives on the line for us, then yes, you jump to the head of the line for trade deals. I don’t expect everyone to agree with me and I had to unlearn quite a lot of B school to come up with that.

      I also believe we should not trade with authoritarian dictatorships, failed states, etc. Trade occurs when there’s a mutual benefit, but in those cases you’re benefitting a corrupt government. Meanwhile friends & allies say “wait, why are you trading with that guy” since for every deal made, there’s another that you didn’t make.

        Ragspierre in reply to tyates. | January 29, 2017 at 10:04 am

        Well, we’ll agree to disagree here.

        I see no utility, morality, or advantage to harming the interests of our own people and other peoples by imposing costs on their liberty, thereby enriching only governments.

        The one exception to that would be trade with a regime like Cuba’s, where the economy is so enslaved that the benefits of trade do no have a chance of benefiting normal people.

          tyates in reply to Ragspierre. | January 30, 2017 at 5:26 am

          So, you support free trade up until a certain line which presumably Cuba has crossed, and after that point there’s no trade at all. The problem is that the mechanics of defining and maintaining that line are really difficult when there’s already a trading history. Imagine how hard it would be right now to stop trading with China altogether after two decades of free trade. Cuba had a new hostile regime so it was much easier.

          And it’s like a teacher that gives out pass fail grades – almost everybody does the minimum to pass since there’s no reward for doing better or penalty for doing worse. If a country like Vietnam can get free trade with the US automatically, just so long as it doesn’t become N. Korea or Myanmar, then what’s the point of being an ally? Incentives matter.

          The economic damage done by the progressive income tax, targeted tax deductions, the welfare state, government guaranteed insurance on everything, etc etc is immense, so if you want to be an economic purist, you’re living in the wrong country and maybe the wrong planet. But if most of nonsense went away and you still had free trade in a market of 1B people or so, you really would see a new world.

If they can do something like this and balance it out by re-instituting the payroll tax cuts or something like that, then I will be fine with this.

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