True to his campaign promises, Donald Trump announced he will build a wall along the Mexican border. In response, Mexico's president canceled a plan to visit to the U.S.
The president also reaffirmed his promise Mexico will pay for the wall. In response, the Mexicans reaffirmed their insistence they won't. Trump's press secretary then floated the thought that a 20% border tax on Mexican goods would produce more than enough revenue to cover the $20 billion cost.
Lost in the crossfire of these verbal volleys was just how seriously to take the press secretary's trial balloon. Hypothetical? Maybe. Assume, though, that it's for real. Assume the administration goes ahead and imposes a 20% tax on countries running big trade surpluses with the U.S., including Mexico, and dedicates the revenue on Mexican imports to defraying wall-construction costs. You have to wonder: Who in this scenario is actually paying to build the wall?
One safe answer is American consumers. They'd pay more for Mexican goods; prices of American goods that compete with Mexican goods would rise as well. Another safe answer is Mexican factory workers and farmers, who would sell less of what they produce to the U.S.
Depending on how events unfold, American farmers and ranchers could also contribute to the wall-construction kitty. American ag exports to Mexico have boomed under the North American Free Trade Agreement. If we put a border tax on Mexican goods, no one should doubt Mexico will retaliate by erecting barriers to American goods. Tom Stenzel, CEO of the United Fresh Produce Association, warns the result would be a trade war that hurts American farmers.
DTN/The Progressive Farmer has covered this issue in depth. For a sobering, thorough report on the facts of U.S.-Mexico trade, see "Border Tax With Mexico, Other Countries Raise Questions for Ag Trade" by Ag Policy Editor Chris Clayton (http://bit.ly/…). For a powerful argument against the president's "Buy American, Hire American" rule, check out Livestock Analyst John Harrington's column headlined, "Mr. President, That Dog Won't Hunt" (http://bit.ly/…). I would add just a couple of points.
First, it seems clear that promoting American manufacturing is the Trump administration's priority. Farm groups have begged the administration to preserve U.S. ag's gains in any renegotiation of NAFTA. Ag producers have seen agriculture get the short end of the stick in other trade talks, and they have to wonder whether Trump's negotiators will be able to both win new protection for American factories and avoid sacrificing some of ag's NAFTA gains.
No Mexican government can survive politically if it rolls over and gives in to the U.S. on every issue. Accepting American bullying is a sure way to lose a Mexican election. Does a 20% tax improve American negotiating leverage? Or does it just make appearing to cave in even riskier politically for Mexico's negotiators?
One other point: If the wall and the border tax are the beginning and end of the Trump administration's immigration policy, U.S. fruit, vegetable and dairy producers will pay in another way. They need a policy that doesn't just crack down on illegal immigrants but also relieves the shortage of legal farm workers.
After Donald Trump won the election, a journalist wrote that the press took Trump "literally but not seriously" while Trump's supporters took him "seriously but not literally." On trade matters, agriculture fears it may have to take the president both seriously and literally.
Urban Lehner can be reached at email@example.com