Im-Politic: A Better Way to Pressure Mexico on Immigration

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Border Crisis, border security, Central America, Charles Grassley, illegal aliens, Im-Politic, immigrants, Immigration, Mexico, migrants, remittances, tariffs, Trade, Trump, U.S.-Mexico-Canada Agreement, USMCA

It’s not every day that I praise veteran Republican Senator Charles Grassley of Iowa. In fact, I don’t believe I’ve ever praised him in print. On trade policy he’s often especially especially clueless – his last foray into this field consisted of threatening to use his chairmanship of the Senate Finance Committee to scuttle the U.S.-Mexico-Canada Trade Agreement (USMCA) unless President Trump withdrew his tariffs on metals imports from Mexico and Canada.

(Grassley was upset because Mexico in particular had retaliated by slapping tariffs on some key American farm products exported by states like Iowa. He didn’t seem to realize that, as I’ve written here, the tariffs needed to be global in scope to be effective. Meanwhile, however serious American farmers’ woes, they began in earnest years before any Trump tariffs went into effect.)

So imagine my surprise yesterday upon learning that Grassley has proposed a response to Mexico’s foot-dragging on helping to ease the crisis on its border with the United States that’s much better than President Trump’s tariffs.

According to Grassley, the way to pressure Mexico to tighten its own curbs on the floods of Central Americans streaming through its territory toward the United States is to tax the remittances sent to their home country by Mexicans who have moved northward both legally and illegally.

Remittances consist of money sent by immigrants back to their home country – usually to relatives. They encourage immigration because they come from wages earned by newcomers to the United States that are much higher than those they can make in their countries of origin.

And we’re unmistakably talking big numbers – especially for Mexico. The country’s own central bank pegged them at almost $31.5 billion last year. That’s more money coming into the Mexican economy than it makes from oil exports, and in fact its second largest foreign exchange earner after auto parts exports.

Unlike tariffs, remittances taxes wouldn’t harm Americans who buy imports from Mexico – whether consumers or businesses. All the victims would be Mexicans in Mexico. And because so many poor Mexicans in particular rely on these funds to help maintain and improve their living standards, a smaller flow would squeeze their finances and surely increase political instability in a country that’s long suffered more than its share of turmoil. Don’t think Mexico’s leaders – who are already sounding inclined to make concessions to Mr. Trump to avoid the threatened tariffs – could brush these sanctions off.

At least as important, unlike the proposed tariffs, remittance taxes wouldn’t endanger Congressional passage of the USMCA or undermine the Trump administration’s China trade policies by reducing Mexico’s attractiveness as an alternative export platform for companies looking to move in whole or in part out of the People’s Republic.

The President has actually spoken of taking this step to raise the resources needed to finance a Border Wall, but never followed through. At the time, covert and overt Open Borders supporters charged that the move could be counterproductive, since the remittances increased the well-being of their recipients enough to encourage them to stay in Mexico.

But since these payments still represent only a fraction of the earnings of Mexicans in the United States, it makes no sense to believe that many Mexicans in Mexico seriously contemplating moving across the border would be satisfied by receiving a fraction of a loaf if they thought it was all potentially available.

It’s possible that the Trump tariff threat could suffice to produce enough of a Mexican response to satisfy him on border security and declare victory with no levies. In this vein, it’s significant that Mexico’s president has already signaled his willingness to appease Mr. Trump somehow. But a remittances threat could have accomplished the same goal with much less muss and fuss. If negotiations with Mexico can’t resolve the issue by the announced Trump deadline of June 10, switching tactics to a remittances tax a la Grassley would be an unmistakable no-brainer.

Im-Politic: Is Trump’s Wall Plan Unrealistic, or All Too Realistic?

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2016 election, capital equipment, Donald Trump, export-led growth, Im-Politic, Immigration, Mexico, remittances, The New York Times, Trade, trade wars, Vicente Fox, wall, Will Olney, Williams College

Since Donald Trump revealed key details behind his proposal to deal with illegal immigration from Mexico by building a wall along America’s southern border, I’ve been waiting for the critics to make abundantly clear why the plan is nuts. Judging from recent attacks from Mexico and in The New York Times, it looks like the wait will be lengthy.

The looniest claim by far is that Mexico would launch a “trade war” with the United States if the Republican front-runner won the White House and used tariffs on Mexico’s exports to the United States to fund the project. This prospect has been raised by no less than former Mexican President Vicente Fox, who told the Associated Press, “Let’s suppose he establishes tariffs, just imagine. We put tariffs on the (hundreds of billions of) dollars that the United States sells to Mexico.’’

It seems that in his golden years, Fox has forgotten that the United States buys nearly 80 percent of Mexico’s exports annually. So that export-dependent economy is going to antagonize its best customer by far? And at a time when sluggish world growth means that no other markets could possibly substitute for America’s? Rotsaruck with that.

Fox also ignores the huge share of U.S. goods exports to Mexico (at least half in 2015) that consists of capital equipment and various other industrial inputs – i.e., the building blocks of Mexico’s export-focused manufacturing base. Talk about cutting off one’s nose, etc. And although it’s true that Mexico could find other suppliers, its own demand for such machinery, equipment, and materials would practically vanish if its access to the U.S. market was lost or greatly reduced.

Equally silly was the op-ed in yesterday’s Times by Williams College economist Will Olney, who argued that if America could overcome the (formidable) legal, financial, and logistical obstacles to financing the wall a la Trump, the plan could harm the United States as much as Mexico. Unfortunately, the two main reasons he provided hold no water.

First, according to Olney, paying for the wall by effectively halting Mexican immigrants’ remittances back home could prevent these immigrants from helping their relatives “invest in education, start businesses and get out of poverty.” As a result, “withholding this money may actually encourage immigration to the United States.” But what seems to have slipped Olney’s mind is that regardless of more adverse economic conditions in Mexico, migrant flows from south of the border logically wouldn’t change once the wall was built because migrants would…face a wall.

Olney would have been better advised to note that bigger migration flows could be expected while the wall was still incomplete. But there’s a fly in this ointment, too: Even though Mexicans have been streaming to the United States legally and illegally for many years, and sending money back home, the impact on Mexican poverty seems unimpressive. For half the country’s population is still classified as poor.

More nonsensical is Olney’s claim that “Banning remittances could also reduce incentives for the best and brightest immigrants to come to the United States. Without the opportunity to provide for their family and friends back home, many talented immigrants might choose to move elsewhere. “ But no one is talking about banning or curbing remittances to any country other than Mexico. And there’s no shortage of the best and the brightest from elsewhere knocking – legally – on America’s door.

Moreover, even remittances to Mexico wouldn’t be banned forever, or even for very long. Under Trump’s plan – which calls for banning remittances only from illegal U.S. residents from Mexico – all restrictions would be lifted once a “one-time payment of $5-$10 billion” to finance wall construction is made by Mexico’s government.

Trump’s wall-financing proposal may indeed founder on many of the aforementioned legal, financial, and logistical obstacles – like keeping track of wired money transfers, and distinguishing between those that will be permitted those singled out for blocking. And the wall itself may prove unfeasible for similar reasons. But it’s also quite possible that these barriers can be overcome – and that Trump’s critics don’t mainly object to the wall because it can’t work, but because it can.