“Trump Seeks 20% Tax on Mexico Imports” is the headline in the New York Times. President Trump claims this is how Mexico will pay for a border wall. It is economic nonsense; a 20 percent tariff is a way to get Americans to pay for the wall without directly taxing them for it.
If the tax applies to all imported goods and services, this will affect everything from auto parts to fresh vegetables. Consumers and producers will thus pay higher prices for goods and services, both imports from Mexico and for goods and services produced in the US that use Mexican-produced inputs. Importers will turn over the tax revenue to the federal government, but they will get the money from Americans via the higher prices of goods and services.
Theoretically, the higher price allows domestic producers to compete with Mexican imports and produce a larger share of the goods previously imported from Mexico and produced domestically. This might lead to increased US employment in these industries, but more likely it will go to shareholders and to pay for equipment by which US firms will automate their production lines. A 20 percent tariff is not nearly enough to remove the labor cost differential between Mexico and the US.
The result: a wall we don’t need, paid for by Americans, with any benefits to American companies going to upper management and shareholders, not to US workers.
This is another example of the Trump Administration’s economic nationalism and it’s still a lousy idea.