Donald Trump has reaffirmed: “One way or the other Mexico will pay for the wall.” At the same time, as recently as today, Trump threatened a government shutdown if Congress did not provide funding for the wall. Time to consider how these points are — or are not — internally consistent, even allowing for the possibility that Mexico might “ultimately” pay.
Back in February, I examined the options for funding the wall built at the US-Mexico border. Since the cost is estimated at $12-$40 billion, this funding issue is a serious one. (That figure does not include annual maintenance and repair costs.)
At the time, there was speculation of a Destination Based Cash Flow Tax (DBCFT), or “Border Adjustment Tax”, would provide funds. However, those proceeds would be derived from all countries, not just Mexico.
Now that the prospects for a Border Adjustment Tax have dimmed, how can Mexico be forced to pay? Mr. Trump has again threatened an end to Nafta, despite ongoing negotiations. As I discussed in this post, and end to Nafta and reversion of treatment of imports from Mexico to MFN rates implies something like $11.8 billion of tariff revenue annually, under plausible assumptions regarding trade elasticities. However, in a deeper sense, the funding coming from Mexico is even less, as some portion of the $11.8 billion would come from American consumers (via higher import prices).
Given these calculations, Mexico funding the wall would only occur if the Mexican government were to effect the fiscal transfer. However, the Mexican government has stated :
“As the Mexican government has always stated, our country will not pay, under any circumstances, for a wall or physical barrier built on U.S. territory along the Mexican border.”
So, to summarize: (1) Congress is unlikely to fully fund in the near term , (2) the Mexican government is unlikely to fund by way of fiscal transfer, and (3) ending Nafta will only provide sufficient revenues over the course of several years (if the revenues can be dedicated to wall building instead of going into general funds), at the cost of higher prices for American consumers and producers.
This leaves certain other options, which under other circumstances (such as when the rule of law obtains), would not be considered: expropriation by military means, i.e. “gunboat diplomacy”. The current Administration, however, has stated a desire to move beyond traditionally defined bounds of international diplomacy.