Getting Mexico to Pay for the Wall
President-elect Donald Trump has been beating his chest all over the world saying that he is most certainly going to build a wall and Mexico is going to pay for it. He has clarified several times after election that his words were not mere election rhetoric. He does intend to build a massive wall of a kind that the world has never seen. However, this giant monument to Trumps ego is going to be expensive to build and maintain.
Mexicans have been voicing their opinion equally vehemently. The Mexican President has stated that paying for the wall that America is building would be against their dignity and it would be akin to bullying. Senators and former presidents have all been saying in different forms that paying for the wall will be a very unpopular political decision for Mexico. Besides, Mexicos reeling economy wouldnt even have the money to pay for the wall without collapsing into a recession.
There has been some speculation as to how Trump will make Mexico pay for the wall. In this article, we will look at the different possible ways that Trump could get Mexicans to dip into their wallet.
Trumps first proposal has been of a direct payment. This simply means that the Mexican government simply pays the money to the US government to build the wall. Given the political and economic environment of Mexico, the probability of this happening is close to zero. Any attempts to bully the people of Mexico will be seen as an attack on their dignity and will make matters worse. Even President Trump has himself stated that the possibility of this happening is close to zero.
Trumps second most obvious choice is to tax the imports from Mexico. A lot of American corporations have manufacturing business throughout Mexico. This is true, particularly for the automotive and the food and beverages sector.
Trump has threatened to rescind the free trade agreement with Mexico and impose a high customs duty on the goods imported into the United States from Mexico! This would have dire consequences on the Mexican economy. Production will have to be cut down and in some cases even closed down. Hence, there is a possibility of loss of employment since companies will simply shift base back to the United States.
Mexico exports far more to the United States than it imports. Hence, Donald Trumps plan to tax imports may not raise money for the wall. However, it will cause inflation in the United States and recession in Mexico at the same time.
Levying High Visa Fee
Mexico has a large number of people that want to immigrate to the United States even by legal means. A lot of Mexicans apply for the visa legally and move over to the United States. Donald Trump plans to hike this fee substantially. He knows that Mexicans have infinitely better employment prospects in the United States than in Mexico. A lot of them spend money to beat law and order and reach the United States.
Hence, if the legal channel asks for a substantial amount, Mexicans will be more than willing to pay for it. These payments can then be used to build the wall. The underlying assumption here is that Mexicans will not take offense at the American bullying and will be happy to comply with Trumps new laws i.e. they will choose economic benefits over emotional reasons.
A large number of Mexicans stay in the United States. This immigration happens both legally as well as illegally. As a result, Mexicans who stay here have to send money to their families. This money is usually wired out of the United States into Mexico.
Donald Trumps plan is to tax this repatriation back to Mexico. If a tax is levied on this money being sent back, theoretically large sums of money can be collected. Over a period of a few years, Trump might recover the costs that have to be spent to build the wall.
However, practically the problems are going to be huge. Stopping the flow of money in this digital age will prove to be difficult. People would instead choose to circumvent the tax by sending their money via a roundabout channel.
Instead of sending money directly to Mexico and paying the tax, they would rather send money to an intermediary country and then route it to Mexico. This proposal has a very limited chance of succeeding and hence is not being viewed favorably by even the closest associates of Trump.
Investments in Mexico
Trump could stop American companies from investing in Mexico. Instead of creating jobs in Mexico, they could create jobs in the United States. The additional tax stream thus generated could be used to pay for the wall. However, this measure would involve a backlash from Mexican people. They would stop buying American products, and the sales would plummet in this region. Also, goods produced in America will be more expensive because of higher labor costs. As a result, sales might plummet causing a slowdown in the economy.
To sum it up, getting Mexico to pay for the wall is possible but at the same time, it is going to be difficult. A lot of egos will be hit, and at the end of the entire exercise, the juice may not be worth the squeeze.
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