Yes, Trump Can Make Mexico Pay for the Border Wall. Here’s How.

Marc A. Thiessen, Washington Post, January 17, 2017

Mexican President Enrique Peña Nieto told an assembly of top diplomats last week that “Mexico of course will not pay” for Donald Trump’s wall.

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Trump absolutely can make Mexico pay. And the answer lies in a provision of the corporate tax-reform plan House Republicans are planning to take up after Trump’s inauguration — the so-called “border adjustment.”

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The House Republicans’ plan would lower the corporate tax from 35 percent to 20 percent and apply the tax based on the location of consumption rather than the location of production. It would do this through a “border adjustment” that exempts exports while taxing imports. Under the plan, all imports coming into the United States would be subject to the 20 percent tax, but exports would have the tax refunded — making them tax-free.

Supporters see it as a way for Trump to follow through on his campaign pledge to tax imports and support exports without resorting to tariffs that would provoke a massive global trade fight.

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As economist Martin Feldstein explains, the border adjustment would raise hundreds of billions in tax revenue — not from U.S. consumers or corporations, but from our foreign trading partners.

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One of the countries with whom we have a large trade deficit is . . . Mexico. The U.S. trade deficit in goods with Mexico was $60.7 billion in 2015 and is expected to be around $65 billion in 2016. So if Mexican imports are taxed at a rate of 20 percent, the United States would raise about $13 billion a year in revenue from Mexico via the border adjustment.

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And here is the really brilliant part: There is nothing Mexico could do about it. Mexico might find ways to retaliate over specific measures targeting it — such as increased fees for visas or taxing remittances. But with the border adjustment, Mexico would have no recourse to complain, because such a measure is global in nature and would affect all U.S. trading partners equally.

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So yes, thanks to the border adjustment, Donald Trump can indeed make Mexico pay for the wall. And Mexico would be powerless to stop him.

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