Taxing Mexican goods to pay for a border wall will tank Mexico’s economy, spike immigration into the United States, and boost the drug trade.
- By Daniel AltmanDaniel Altman is the owner of North Yard Analytics LLC, a sports data consulting firm, and an adjunct associate professor of economics at New York University’s Stern School of Business.
MEXICO CITY — I’ve never met Enrique Peña Nieto, but if I were the Mexican president, I’d want to tell Donald Trump a few things about the economic relationship between my country and the United States at our meeting on Wednesday. I’d be hoping to lessen the damage a Trump presidency might do to the Mexican economy. And if Trump deigned to listen, I think he might just see things my way.
Mexico’s economy has been growing at less than 3 percent per year since 2013. That’s a low rate for a middle-income country, and the government’s debt has been rising steadily in the meantime. The peso’s value in dollars has plummeted by almost half since 2008, while wages have risen by only about 40 percent in the same period. As a result, imports are much more expensive for Mexicans than they used to be. For many, living standards feel like they’re stagnant or even falling.
I’d tell Trump to consider how his policies might affect both the Mexican and U.S. economies. He has proposed tearing up the North American Free Trade Agreement (NAFTA), which would make Mexican exports more expensive to Americans and also hamper U.S. companies trying to do business in Mexico. Naturally, American consumers and businesses would look elsewhere for imported goods and services — which would be a huge blow to the Mexican economy, as 81 percent of its exports go to the United States. And if American companies started closing their factories and service operations in Mexico, the wound would go even deeper.
Trump has repeatedly said he’d use extortion to force Mexico to pay for his wall along the southern border of the United States, by blocking remittances to Mexico until the government coughed up the money. This probably wouldn’t work, since remittances could still be sent via third countries or using informal services. An obvious alternative is to use the proceeds of his proposed tax on imports from Mexico, but, as any first-year economics student can tell you, the burden of such a tax would usually be shared between buyers and sellers. Americans would suffer if they couldn’t find the goods and services they would have bought from Mexico elsewhere at the same prices. But it’s virtually certain that such a tax would damage the Mexican economy even more.
These are two big reasons — over and above all the racist rhetoric, which I’ll try not to dwell on — why Mexicans fear a Trump presidency. The irony is that these same policies would threaten two of Trump’s other campaign promises: stopping undocumented migrants from entering the United States from Mexico and getting tougher on crime.
What happens when the Mexican economy tanks? As in any other economy, unemployment and poverty begin to rise. Naturally, again, Mexican workers would look for opportunities abroad. In recent years, flows of undocumented migrants across the border to the United States have corresponded closely with the differences in the strength of the two economies, particularly in the industries where migrants tend to work.
And since even Trump can’t build a wall overnight, the erosion of the labor market in Mexico would probably lead hundreds of thousands more Mexicans to make the arduous trip north. In fact, the threat alone of the wall’s construction would likely result in a massive exodus from Mexico by people hoping to cross the border beforehand; years of migration might be squeezed into a much shorter period. At the beginning of a Trump presidency, undocumented migration would spike, not decline.
Security would also be put at risk by a struggling Mexican economy. The one export that would be neither affected by the dissolution of NAFTA nor taxed is illegal drugs. Mexicans who can no longer find jobs in other industries might take jobs in the drug trade just to make ends meet. And if the importance of the drug trade grows in the Mexican economy, so will the corruption and violence that have tended to spill across the border — wall or no wall.
Now, the coincidence of a massive inflow of Mexican migrants and an uptick in crime might fit Trump’s rhetorical and political purposes, but it would do no favors for either of our economies in the short term. Keeping campaign promises is one thing, but is this really how he wants to start — and perhaps end — his presidency?
Full disclosure: Daniel Altman is the treasurer of Our Shared Future PAC, an independent expenditure committee not affiliated with any candidate, political party, or other organization.
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