Could repealing NAFTA pay for a border wall?

 It is hard to come up with counterfactual tariff revenue if NAFTA is repealed. You need to go through the U.S. uniform tariff schedule, apply those tariffs to the current duty-free trade with Mexico, and then estimate how much trade volumes would decrease if tariffs were reimposed. 

Here is a back-of-the-envelope estimate. In 1991, tariffs on imports from Mexico came to around $567 million on $39 billion of imports. Imports from Mexico are now around $294 million. That would imply revenues around $4.5 billion. A slightly more (but not much) sophisticated estimate uses the tariff rates from 1991 and adjusts for the share of imports using USITC data. At the two-digit level (which is a blunderbuss) that would get you revenue of $3.9 billion today.  

Of course, the Uruguay Round then cut tariffs by about half, so assuming that Mexico would retain normal trading relations after the U.S. repealed NAFTA, then those revenues would fall to something around $2.0 billion. 

Even if you cut that by half again for falling trade volumes, you get $1 billion per year. Enough for the wall?

One engineer estimated the amount of materials needed. A second estimated the cost. Cut that materials cost in half (for only 1000 miles of wall) and you have $8.5 billion. Double that again for total cost: $17 billion. 

Given low U.S. borrowing costs, the Drumpf administration could plausibly claim that ending NAFTA did indeed force Mexico to pay for that wall, even if some of that tariff incidence fell on American consumers. (Once NAFTA is finished, President Trump could try to get Congress to remove normal trading relations from Mexico and raise tariffs further, or impose taxes on wire transfers from the United States, but that is not something he could legally do on his own.) Over two decades or so, those revenues could finance a wall. If you squint really hard. And Donald sure is squinty-eyed.

The things I think about these days.

Comments

[Gareth WIlson]

If you actually want to stop illegal entry, a better model is the Israeli 'separation barrier'. Multiple wire fences with a road in between and constant patrols and surveillance. The significance of a fence rather than a wall is you can see the people behind it trying to cross. I think this is cheaper in terms of infrastructure but much more expensive in labour. Of course, this might not scale up very well.

[J.H.]

Hmmm...but if NAFTA is repealed what then happens to US-Canadian trade? NAFTA was preceded by the US-Canada free trade agreement but I think that agreement (or rather the legislation implementing) itself was repealed by the legislation implementing NAFTA right?

For that reason alone I suspect that Trump would have a difficult time repealing NAFTA since the unintended target (Canada) matters so much that it might not be worth doing it just to get at the intended target (Mexico).

If so then Mexico has Canada as a shield.

[Noel Maurer]

Excellent point!

The legality is unclear. The NAFTA Implementation Act lays out no process for withdrawal, although the agreement itself does. Section 201 gives the President wide authority to proclaim tariff changes in order to implement the Agreement. If President Drumpf really wanted to push the legality, he could alter only the tariffs affecting Mexico. In fact, he could try to keep the other NAFTA institutions in place, although that would require Canadian cooperation and inspire a host of lawsuits should they be used.

https://www.gpo.gov/fdsys/pkg/BILLS-103hr3450enr/pdf/BILLS-103hr3450enr.pdf

There would be lawsuits over tariff changes that affected Mexico but not Canada; standing isn't an issue. How would those suits then unfold? Doug Muir would have a better sense of that than I do. Doug?

P.S. A hostile U.S. administration could unilaterally suspend much of Mexico's trade access if it can the International Trade Commission to go along. I'm good friends with one of the current commissioners, a Republican appointed by President Obama. They serve nine-year terms and they aren't lapdogs ... but they do launch investigations and make recommendations at the request of the President. It's unclear whether President Drumpf could get the ITC to do his bidding.

P.P.S. The NAFTA Act suspends Mexico's GSP access to the American market. So kicking it out of NAFTA would hurt very very badly.

[J.H.]

So kicking Mexico out of NAFTA should trigger the reactivation of Mexico's GSP access and thus give Mexico non-reciprocal preferential tariff access to the US market?

That would make a repeal of NAFTA a massive boomerang wouldn't it?

[Noel Maurer]

The Drumpf administration will argue that the NAFTA Implementation Act and NAFTA are different, and therefore Mexico has lost forever its GSP access.

It will then get sued, and God only knows what will happen. I think in this case the administration would win, but it would be ugly.

[olaf]

Mexico published a pamphlet on how to sneak into the US and hide here. They could be counter-sued for engaging in a hostile act, conspiracy to break US law, encouraging human trafficking, etc.

[olaf]

The real problem with NAFTA is that it actually encourages foreign mfg. in Mexico, that previously under the days of import quotas, would have been done here US.
For example, a car maker can produce in cars in Mexico paying $5.00/hr to a worker and then ship those cars right into the US w/o any trade barrier. If we had no NAFTA and import quotas, those manufacturers would have an incentive to produce IN the US to avoid barriers and US workers would get $40.00/hr. Also Ford and GM would stay in the US too. So in the end, it isn't Mexico who is importing that much into the US, it is everybody! And they avoid US labor laws, taxes and environmental controls. Any wonder these CEO's are making tens and hundreds of millions for doing NOTHING other than shipping out. They aren't geniuses, they don't deserve these payouts.

[Noel Maurer]

Olaf is referring to this story from 2005: http://www.nytimes.com/2005/01/06/world/americas/a-mexican-manual-for-illegal-migrants-upsets-some-in-us.html?_r=0

It's a real thing and I understand why it annoyed some Americans. But there are zero grounds for a lawsuit from the pamphlet, of course, same as the people who publish High Times can't be arrested. I wouldn't want to live in a country where our government decides what we can and cannot read, especially if written by foreigners.

The logic about NAFTA only holds if you believe three things: (1) China doesn't exist; (2) Americans export nothing to Mexico; (3) Environmental regulations pose significant costs for American manufacturers, but there is no evidence of that.

I may have to dig up those emails I sent during the Alaska caucuses. Any readers have copies?