Buiilding $12 billion walls & crossing them
Just over a week into his administration, President Trump has taken multiple steps that forebode economic, geopolitical and humanitarian trouble for our southern neighbor. It may be popular among xenophobes, but it is not in America’s interest.
Mr. Trump appears obsessed about his pledge that Mexico will pay for his ill-thought, 2,000-mile wall. Who constructs a wall and then asks their poorer neighbor to pay for it? America’s new president does.
When Mexico, whose GDP is 11% of the United States’, naturally responded that it would not pay for the demeaning wall, Mr. Trump appeared to feel disrespected and his advisors searched for other means to meet his campaign promise. Mr. Trump announced he intends to impose a 20 percent discriminatory tax on Mexican imports to pay for the $12 billion dollar wall. Such a tax would violate not only American commitments under NAFTA, but also the anti-discrimination rules of the World Trade Organization. Trump may swerve back and choose a route that does not discriminate against Mexico and institute a new tax applied to imports and domestic products alike (similar to Mexico’s VAT). But while raising government revenue, such a consumption tax would just pass costs onto American consumers. They, not Mexico, would pay, though the spin would follow.
America’s president’s recent rhetoric is the latest in a series of directives that could lead to the collapse of the U.S.-Mexico partnership.
Mr. Trump made three primary pledges during his campaign—to withdraw from NAFTA unless Mexico accepts his terms, build a wall across the southern border and have Mexico pay for it, and deport undocumented Mexican migrants in mass. If he implements them, he could sever the relationship beyond repair. This would constitute a huge geopolitical mistake. Not only could these policies devastate Mexico, they will tarnish America’s reputation around the world and possibly upend the institutions that America created after World War II and the Cold War to protect global prosperity. They will, moreover, empower illiberal regimes, such as Russia and China.
So why should Americans, even wholly self-interested ones, care about Mexican suffering from these policy shifts? Because they will adversely affect all Americans.
First, Mexico is already suffering from low economic growth, and more than 80 percent of Mexican exports go to the United States. If the U.S. suddenly raises a discriminatory 20% tax on only Mexican products, it could severely damage Mexico’s economy, deterring productive investment, slashing Mexico’s GDP, and drying Mexican demand for U.S. products. Already the prospect of NAFTA’s demise has damaged Mexico. The Mexican peso’s value has plummeted, raising Mexicans’ cost of living and, ironically, making Mexican exports to the U.S. cheaper and even more competitive.
Second, Mr. Trump has suggested that he also would like to tax or seize remissions being sent to families in Mexico to “make Mexico pay” for his wall. We don’t normally tax bank transfers and so it would again be discriminatory. Such a policy would further ravage Mexico’s economy. Reparations are Mexico’s largest single source of foreign income, surpassing even oil revenue.
Third, the migration issue is now a false problem. Trump’s proposed mass deportation of an estimated six million unauthorized Mexican immigrants is at a time when net Mexican migration is negative (more Mexicans left the U.S. than entered under the Obama administration). This mass deportation would further catalyze an economic and humanitarian crisis. U.S. cities on the southern border would severely suffer when tourism, commerce, consumption, and productivity collapse. There is a dark and costly precedent to this, the Mexican “repatriation” of the 1930s.
It doesn’t take much to see how actions that impoverish Mexicans will increase their economic desperation and spur them to leave their homes and increase the very migration that Mr. Trump says he seeks to contain. Mexican prosperity is in America’s interest, not contrary to it. The more we “push” Mexico into economic immiseration, the more we “pull” Mexicans here.
Mexico, of course, would not take this lightly. After NAFTA, Mexico became a U.S. ally, while previously it took anti-U.S. stances internationally. If the Trump administration implements his pledges as announced, Mexico could abandon its alliance with the United States. Other Latin American countries could follow suit.
No wonder China’s leaders envision creating a new partnership with Mexico as a substitute for the now defunct Transpacific Partnership — a deal that was designed to counter China’s influence and improve NAFTA. The Asian giant can now profit from a show of sympathy for a distressed Mexico, while increasing its economic and geopolitical prospects in Latin America.
Mr Trump’s policies are not only mean and violate basic American values of non-discrimination. They would not only degrade Mexico economically, geopolitically, and humanitarianly. They would degrade America as well. If regional and international institutions collapse as a result of our president’s policies, America could find itself at a time last seen in the 1930s, that of the rise of fascism and communism. This time, it suddenly seems fair to question, on which side will America be?
Sergio Puig is Associate Professor and Director of the International Trade and Business Law Program at James E. Rogers College of Law, University of Arizona.
Gregory Shaffer is Chancellor’s Professor of Law and Director of the Center of Globalization, Law, and Society at University of California, Irvine.