Trump Considers Border Taxes

Border Tax With Mexico, Other Countries Raises Questions for Ag Trade

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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President Donald Trump is pushing buttons in the U.S. relationship with Mexico, which now includes the suggestion of an import tax that could have varying implications for U.S. ag exports as well. Here a ship loaded with wheat and canola prepares to head to Mexico. (DTN file photo)

OMAHA (DTN) -- In another day of falling out with a major trading partner, President Donald Trump and his team declared support for a potential 20% tax on all imports as one way to help fund the construction of a wall to separate the U.S. and Mexico.

White House spokesman Sean Spicer told the White House press pool that Trump intends to pay for the wall by imposing a 20% tax on all imports.

"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 said, according to the White House pool report. "If you tax that $50 billion at 20% 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 that we can do $10 billion a year and easily pay for a wall just through mechanism alone. That's really going to provide the funding."

The prospect of a border tax and growing conflict with Mexico raises questions about the $39 billion or so in commodities and food that flow between the U.S. and Mexico essentially tariff-free right now under the North American Free Trade Agreement. Mexico is a key destination for U.S. corn, soybeans, dairy products, pork and beef. By the same token, Mexico sends to the U.S. a large volume of fruits, vegetables and alcohol products.

The comments come as the White House and Congress are each talking about varying degrees of border taxes and potentially tariffs. Congressional leaders have been looking into a "border adjustment tax" that would tax all imports but exclude taxing exports. House leaders view the tax as a way to stop companies from moving manufacturing jobs overseas. Such a border tax would have to be approved by Congress before enacted.

"Right now we are focused on Mexico, but I think as we look comprehensively at our trade situation and countries that we have a deficit for, this is something the president has been talking about holistically," Spicer said. "He (Trump) has talked about a border tax. In particular, companies that move out, ship things back in. But in this case, this really handles, is focused more on the immigration piece."

It is unclear how such a tax would fly with Mexico under the North American Free Trade Agreement. Still, the wall, executive orders on deportation, and complaints by President Trump about U.S. companies manufacturing goods in Mexico have quickly eroded relations between two countries that do roughly $585 billion to $600 billion in annual trade.

The rift between the U.S. and Mexico is such that Mexican President Enrique Pena Nieto and Trump have canceled a planned meeting next week in Washington after Trump signed the executive order to build the wall. Trump angered Nieto and other Mexican leaders by not only ordering the wall, but also reiterating in an interview with ABC that Mexico will pay for the wall, even if U.S. taxpayers have to foot the bill in advance. "It will be in a form, perhaps a complicated form."

Trump added, in the interview, "Well, I'd say very simply that they are going to pay for it. I never said they're gonna pay from the start. I said Mexico will pay for the wall. But what I will tell my supporters is, 'Would you like me to wait two years or three years before I make this deal?' Because we have to make a deal on NAFTA. We have to make a new trade deal with Mexico because we're getting clobbered."

Just Wednesday, Trump's special trade adviser Peter Navarro met with Mexican Economic Minister Ildefonso Guajardo in Washington. Reuters reported Guajardo told Mexican television that he and Navarro had a long conversation about ways "to modernize the NAFTA trade agreement sensibly, and how to avoid obstacles to free trade."

Mexico, and potentially Canada, might have options to challenge a border tax by bringing a World Trade Organization case against the U.S., arguing it violates NAFTA.

Countries also could reciprocate against U.S. products.

Figures for 2016 are not available, but in 2015, the U.S. exported $238 billion in goods to Mexico while importing $295 billion in goods. The U.S. ran a $58 billion trade deficit with Mexico on products.

The two countries also had another $52.4 billion in trade regarding services in which the U.S. had a $9.2 billion surplus in 2015.

AG TRADE BETWEEN U.S. AND MEXICO

The U.S. exported $18 billion in ag products to Mexico in 2015 while importing $21 billion, resulting in a $3 billion trade deficit. The two countries largely ship entirely different products each way.

The $18 billion in ag goods sent from the U.S. to Mexico in 2015 was down $1.5 billion from a year earlier. Leading ag exports included: corn ($2.3 billion), soybeans ($1.4 billion), dairy products ($1.3 billion), pork and pork products ($1.3 billion), and beef and beef products ($1.1 billion).

The $21 billion in ag products sent from Mexico to the U.S. in 2015 included: fresh vegetables ($4.8 billion), other fresh fruit ($4.3 billion), wine and beer ($2.7 billion), snack foods ($1.7 billion), and processed fruit and vegetables ($1.4 billion).

Just this week, 130 agricultural trade associations and businesses sent a letter to the president again reiterating the importance of trade to the bottom lines of farmers and agribusinesses. The groups and business, calling themselves the U.S. Food and Agriculture Dialogue for Trade, wrote to Trump that they were focused on ways to modernize NAFTA "in ways that preserve and expand upon the gains achieved." The ag groups added that NAFTA has been "a windfall for U.S. farmers, ranchers and food processors."

The letter further noted that, outside a few key exceptions, "North American intraregional food and agricultural trade is now free of tariff and quota restrictions."

The ag groups did not state whether border taxes on imports would disrupt that dynamic.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

(AG/ES)

Chris Clayton