A WORD FROM: THE WISE
Will Mexico Pay for the Wall?
On Thursday President Trump announced that beginning June 10th the United States will impose a 5% tariff on all (legal) goods coming into our country and the 5% rate will increase another 5% each month until it reaches 25% in October. Mexico can avoid paying these tariffs if they demonstrate a willingness to take aggressive actions to stem the flow of illegals crossing the border between Mexico and the United States.
President Trump could potentially use the money collected from these tariffs to fund the construction of a border wall, and to provide other types of administrative, technical, medical, and legal assistance for the Border Patrol and ICE. Congress has been unwilling to fund these actions in recent months.
It seems that President Trump is the only adult in the room when it comes to immigration. Members of his own party seem to be missing in action when it comes to the topic of immigration. There are still a significant number of RINOs and establishment folks who take their marching orders from the Chamber of Commerce, the K Street lobbyists, the Business Roundtable, and wealthy donors like the Koch brothers. He must also deal with the Democrat Party who simply refuses to acknowledge that there is a crisis at our border. Most of them prefer open borders, they don’t support any new border walls, and many would like to do away with border enforcement and ICE altogether.
In a recent poll, immigration is now the number one issue on the minds of voters, surpassing healthcare. Over the last few months the polls have also shown that citizens are becoming more concerned about the number of illegals coming into this country.
Given that background, I decided to take a look at the actual imports coming into the US from Mexico to estimate the potential fees that might be collected if the tariffs are actually implemented. Here are the actual import numbers for all of 2018 and the first three months of 2019 as reported by the US Census Bureau:
Value of Imports Deficit (Exports-Imports)
Year 2018 $346,527.7 Billion $-81,517.4 Billion
January 2019 $27,681.7 Billion $-5,768.0 Billion
February 2019 $27,612.6 Billion $-7,402.6 Billion
March 2019 $31,335.2 Billion $-9,505.1 Billion
For the first three months of 2019 Mexico sent $86,629.4 billion of goods into the US. If they were subject to the 5% proposed tariff, the US would have received more than $4.3 billion in tariffs. At a 10% rate due to take effect on July 1st, that number doubles to $8.6 billion.
What if Mexico declares that they will impose the same tariffs on US goods going into their country? Well, the US still does pretty well. Looking at the monthly trade deficits we see that the US racked up $22,675.7 billion in deficits for the first three months. If we take 5% of that number it comes to a little over $1.13 billion. If we look at the total trade deficit for all of 2018 of $81,517.4 billion, 5% of that amount would be more than $4.0 billion.
It certainly looks like President Trump may have found a way for Mexico to pay for the wall no matter which set of numbers we use. The naysayers will argue that such actions will disrupt supply chains and long-standing market relationships.
But let us remember that we have other goals in this dispute. The Trump administration clearly wants to bring home more manufacturing jobs. Also, as the US regains control of our southern border it will decrease the number of illegals that American taxpayers are supporting and it will decrease the flow of illegal drugs into our country. The Recovery Village estimates that illegal drugs costs American society $181 billion a year in healthcare costs, lost workplace productivity, law enforcement, and legal costs. Just a 10% improvement in this area would yield over $18 billion a year.
Finally, the raw numbers presented here do not take into account the value of unreported (illegal) flow of funds between the United States and Mexico. It is estimated that 80-90% of all illegal drugs entering the US come from Mexico. There are many estimates as to the value of this activity, but all the estimates are in the billions. Now the Mexican cartels have found a new source of income, that being human trafficking. Recent estimates indicate this business is actually larger and more profitable than the drug trade.
Everyone has an opinion on what needs to happen next. I realize there may be some short-term pain (e.g., higher prices, job disruptions, sourcing decisions) while the proposed tariffs are put into effect. However, I am willing to incur short-term pain if we are able to finally achieve long-term goals of enhanced border security, a substantial reduction in the flow of illegal drugs and human trafficking, and a net reduction in the number of illegal residents in the US.
Mexico has some serious challenges in the days ahead.