Can Donald Trump use his “very powerful hands” to force Mexico to pay for his promised wall along the U.S.-Mexico border? In an expletive-laced rant on February 25, former Mexican President Vincente Fox dismissed Trump’s “effing wall.” Trump retorted that “the wall just got 10 feet higher.” Challenged on details of his plans for making Mexico pay, Trump points to its $58 billion annual trade surplus with the United States. But does that imbalance in trade offer a viable source of financing for a wall between the two nations?
A widely cited CNN analysis estimated that building the wall would take about four years and cost around $10 billion. By comparison, revenue from tariffs on all imports into the United States during 2015 was a little over $33.8 billion. Duties on imports from Mexico accounted for almost exactly a hundredth of that, or approximately $338.2 million. Even if we spread the cost of constructing the wall over 10 years—the standard federal budgeting horizon—financing it entirely from tariffs would mean quadrupling existing duties on Mexican imports. That would expose over $236.3 billion of current annual U.S. exports to Mexico to retaliatory tariff increases. Moreover, it is inconceivable that additional duties of that magnitude on Mexican goods would not prompt U.S. importers to look to other countries as alternative supply sources, thereby shrinking the base of, and the resulting revenue from, the new duties. Mexico might pay for the wall, but only in the sense that its exports to the United States would suffer. And to the extent the additional duties actually enhance revenue, U.S. consumers would be the ones paying for the wall in the form of higher prices.