Raising barriers to pay for a wall: we anticipate Trumpian logic!

Back in March of 2016, we suggested that a Trump administration could repeal NAFTA and claim that Mexico was paying for the wall via higher tariffs. A static back-of-envelope calculation implied that the U.S. would receive about $2 billion a year in additional revenue. Cutting that in half to account for falling trade volumes would give you about a billion. Thirty-year treasuries are currently yielding about 2.875%, so that billion-dollar revenue stream could plausibly be said to allow for $19.9 billion in borrowing to finance the wall, currently estimated to cost about $18 billion.

In reality, repealing NAFTA would not pay for the wall for two reasons. First, the economic dislocations would almost certainly reduce other tax revenues. Second, much (most?) of those tariffs would fall on American consumers more than Mexican producers. Third, inasmuch as Mexican producers will pay, many of those producers are American owned. Add that up, and repealing NAFTA will cost rather more than the additional tariff revenue.

But you could, in a static sense, claim that repealing NAFTA would pay for the wall. 

And now, in a fairly incoherent interview for the Wall Street Journal, the President has now jumped on the “logic” we laid out last March. “[Mexico] can pay for [the wall] indirectly through NAFTA. We make a good deal on NAFTA, and, say, I’m going to take a small percentage of that money and it’s going toward the wall. Guess what? Mexico’s paying.” 

The obvious read is that he intends to bring back tariffs on U.S.-Mexico trade (the small percentage) and will use that revenue to pay for the wall. If there was any consistency to this White House at all, I would take that as the death knell for the trade agreement.

But who knows what the President meant? Does he even know what he meant?

Comments

[FS]

At risk of being literal -- he said "make a good deal" which suggests he intends on making a deal as opposing to scuppering it. He could claim that his new deal (pun intended) raised economic growth and ergo created extra tax revenue for the federal government.

[J.H.]

Or possibly the good deal means raising the requirement for local/North American content on goods in order to qualify for duty free access ---> thus goods that previously qualified with say...50% of their content of North American origin wouldn't qualify if the threshold is now 60% and as a result are taxed. That extra tax revenue is then used for the wall.

[J.H.]

So now that Mexico and Canada have been sorta strong-armed into a replacement NAFTA deal (now to be called USMCA), any thoughts on it (and the process of negotiations) Noel?