President Donald Trump’s spokesperson Sean Spicer on Thursday suggested a potential 20% tax on Mexican imports to help fund the president’s promised border wall.
While Mexico has repeatedly said it will not pay for the wall, the 20% tax comment has generated a heightened level of anxiety among supply chain participants in the U.S.
Any tax would have to be approved by Congress, however, the proposal is not necessarily a Trump plan, but rather a GOP proposal, Politico reported.
“When you look at the plan that’s taking shape now, [it’s] using comprehensive tax reform as a means to tax imports from countries that we have trade deficit from, like Mexico,” Spicer told reporters. “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 the wall just through that mechanism alone. That’s really going to provide the funding.”
A closer look at the 20% tax, taken by Politico, reveals that it is part of the GOP’s tax overhaul plan. Just 10 days ago, Trump protested the GOP plan, which calls for a “border adjustment” tax of 20% on imports.
“Anytime I hear border adjustment, I don’t love it,” Trump told the Wall Street Journal. “It’s too complicated. I just want it nice and simple.”
Regardless of where the proposal originated, it has the potential to disrupt freight.
Since 2011, when the U.S. exported $262 billion worth of goods to Mexico, the value of exports has increased each year to 2015, the last full year of data available, when it hit $295 billion, according to data from the U.S. Census Bureau. Imports have also increased during that time, from $198 billion in 2011 to $235 billion in 2015. Final 2016 numbers have not been reported, but through November 2016, import and export trade with Mexico was trending about equal to 2015 numbers.
David French, senior vice president of government relations with the National Retail Federation, told the New York Times that retail businesses could see their tax bills rise under a border adjustment tax – costs that would be passed along to consumers. The concept is “very counter to the way consumers are feeling at the moment,” French said.
Federal Reserve Bank of New York President and CEO William Dudley earlier this month said a border adjustment tax would have unintended consequences for American consumers.
“Mr. Dudley and retailers are in agreement: a border adjustment scheme would be a risky experiment for the American economy,” French said following Dudley’s speech at NRF’s Retail’s BIG Show. “Economic theorists are playing with fire and it’s the consumer who ultimately will lose.”
This is not the first border skirmish over taxes and fees between the U.S. and Mexico. Back in 2009, the U.S. cut funding for a cross-border truck demonstration program that allowed a limited number of Mexican trucks to haul goods into the United States beyond the commercialized zone at the border. Mexico retaliated, placing tariffs on about 90 U.S. goods.
A year after those tariffs were put in place, the U.S. Chamber of Commerce estimated that $1.5 billion in manufactured goods, $900 million in U.S. agricultural products, and 25,000 U.S. jobs were impacted by the spat.
Eventually, the U.S. created a program to allow registered Mexican trucks into the U.S. and the tariffs were lifted. But the economic impact was felt for several years.