Friday, January 27, 2017

Trump's Wall

'Cause somehow I can't believe that anything should happen
I know we're right below and nothing's gonna happen
--Tal Bachman

Building a two thousand mile long wall along the border between the United States and Mexico to discourage illegal immigration was a central plank in Donald Trump's campaign platform. As president, he has already signed an executive order to move forward on the plan.

He has stated that he wants Mexico to pay for Trump's Wall, and yesterday proposed a 20% border tax on goods coming to the US from Mexico to fund the project.

But tariffs are merely sales taxes. And sales taxes are borne directly by buyers of imported goods, not the sellers. If this scheme becomes reality, then it will be Americans who pay for the wall, not Mexicans.

Jacob Hornberger adds a salient point here. A tariff reduces demand for Mexican goods because those goods carry higher prices. That reduced demand will drive marginal Mexican operations out of business. It will also make foreign direct investment in Mexico less attractive. Economic hardship is therefore bound to increase in Mexico.

Worsening economic conditions and more unemployment will motivate more Mexicans to consider crossing the border illegally in search of opportunities. Ironically, then, building Trump's Wall using his proposed funding approach will encourage more Mexicans to circumvent the wall.

Several initiatives seem to make more sense than Trump's Wall. One is for the president to better enforce existing illegal immigration laws on the books--something that President Obama largely ignored. In fact, it can be argued that Obama's lawlessness here has fueled overreaction in the opposite direction.

Another is to reduce the welfare state in the US so that incentives for coming to America to live off the backs of others is reduced.

Finally, and perhaps best, work to encourage economic prosperity in Mexico. The greater the prosperity in Mexico, the less incentive people have to travel thousands of miles from home in search of better standards of living.

What's the best way to encourage that? Free trade and unhampered markets.

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