The Power and the Money

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?

Has Trumpian enforcement reduced illegal immigration in 2017? Depends on what you think happened in 2015

Border apprehensions in March 2017 fell a lot compared to March 2016. This is taken as evidence that Trumpian enforcement is scaring off potential migrants.

But as Kevin Drum pointed out, March apprehensions have been falling for a very long time. The red line shows March apprehensions for the corresponding year; the blue line shows February.

Then again, that long fall in March apprehensions stopped in 2011. They were stable until 2015, when they fell again, followed by stability in 2016, and then another big fall this year.

So is it Trump? Well, that depends on what you think happened in 2015. If something happened to start migration falling, then 2016 is the blip and this year is just the resumption of the trend. But February apprehensions (before Trump unleashed the CBP) fell in 2015 but did not rise year.

That makes 2015 seem like a one-off. If 2015 was a one-time drop, then 2017 might also be an independent one-time drop.

So what could have caused a sharp drop in apprehensions in 2015? Take a look at the purple and green lines. Those represent Mexican apprehensions of Central Americans headed north in March and February respectively. Those apprehensions jumped in 2015, when Mexico began to crack down on Central American migrants.

Now, the rise in Mexican apprehensions is less than the fall in American apprehensions, but the Mexican crackdown was brutal and likely dissuaded many people from heading north in the first place. 

Which means that we do have a one-off policy to explain 2015: a one-time upward shift in Mexican enforcement efforts. Mexican apprehensions have since fallen, but that appears to be more likely due to dissuation (as Central Americans realize how much more unfriendly Mexico has become) than a slackening of Mexican efforts. 

To sum: apprehensions fell steadily from 2007 to 2011 due to the Great Recession. They then stabilized until 2015. In 2015, apprehensions shifted downward when Mexico stepped up enforcement, stopping people before they reached the U.S. In 2017 apprehensions shifted downward for a second time, possibly when Trumpian enforcement started to scare people off. 

We won’t know for sure until the numbers for April (and May and June and July) are in. But it seems quite plausible that the current angry policies have reduced migration. Simply drawing a trend line from 2000 to date and declaring no effect can be quite misleading. 

The Trump wall keeps getting shorter, another guide for New Yorkers

Man, at first the Trump Wall was 60-feet high. That was a wall! A tenement-high wall. You could be impressed by that.

But now the specs are calling for prototypes between 18 and 30 feet tall. Dude. That is not tall. Thirty feet would make it shorter than the row of taxpayers behind me in this photo:

 

Sad! Come on. If we are going to go stupid, we should go stupid bigly. I say 80 feet!

By the way, for those of you who are curious, those taxpayers are where they are because the zoning will not allow anything higher on that corner. That is ironic, since they were tossed up in the first two decades of the 20th century as placeholders awaiting a skyscraper boom that took ten decades to arrive. Now that it is here, you cannot build there. Also sad!

Hechos alternativos in the Financial Times?

Today the Financial Times published a mysterious map purporting to show Mexican-American border disputes, according to Senator Patricio Martínez. I am more than slightly surprised that the newspaper is giving such credence to the Senator’s bizarro-world claims with no further fact-checking. 

It is a very nice map, except that we do not have the foggiest idea where it comes from, save perhaps the febrile imagination of Senator Martínez.

Article I of the Gadsden Purchase Treaty lays out the border pretty specifically. Martínez seems to be suggesting that nobody noticed that Nogales lies entirely inside Mexico. He also seems to be suggesting that the Gadsden Purchase Treaty said that the line west from El Paso should have run 115 miles instead of 100. Which would be fine, if the treaty didn’t, you know, say “one hundred miles.” 

The story in the FT piece about the Mexican government discovering that the stone cairns marking the border had been destroyed is true. The problem with the story is that the U.S. and Mexican governments spent six years resurveying and delineating the border in 1891-96. The Barlow-Blanco resurvey went over the whole damn thing and replaced all the missing border markers. You can read the whole report here. 

As for the 1897 note from the Mexican foreign minister, I have no idea. I do know that Matías Romero signed a border convention in October, so his objections, whatever they were, did not seem to be major. 

To conclude: the newspaper should report that a Mexican senator is claiming that the border is in the wrong place! But I would think that maybe, you know, they might also at least hint that there is pretty much nothing behind those claims. 

How high is the Trump Wall? A guide for New Yorkers

OK, the President claims that the wall will be 60 feet high. If I had to bet, I would bet that it is not going to be built, but who knows? If I were in Congress, I would vote for the boondoggle in exchange for leaving Obamacare alone. 

Still, how tall is sixty feet? It is not a height that you would normally reference. So I am here to tell you! A “standard” six-story NYC new law tenement rises about 66 feet. (I lived in one for a few years as a teenager, a building completed in 1910.) The below picture shows my boy (in the blue jacket) playing jump rope in front of a row of new law tenements in Manhattan. 

The proposed wall would be about six feet shorter than the row of buildings in the middle of the picture. Here is another view of similarly-sized structures:

Just imagine that this was South Texas and those buildings were the wall! Easy.

Of course, the President has also said that he wants the wall to be eighty feet tall. That would make it the height of the building with the watertower in the background (77 feet) of this picture from last May:

And now you know! I will admit that if we are going to blow billions on a pointless monument across the southern border, I kind of hope we go all out and build it eighty feet tall. Our grandchildren in the 2060s will zip over it in their flying cars and marvel at our folly. If you are gonna be stupid, be impressively stupid! 

ADDENDUM: And expensive! For those of you who want an idea of the cost, a good calculator is here. An 80-foot high 18-inch thick barrier built over a little more than half the border (1,000 miles) clocks in around $28 billion. Another calculator, which uses higher cost assumptions, gives $45 billion.

Hechos alternativos

A Mexican senator has called for Mexico to reopen all its border disputes with the United States in order to oppose the Trump administration. (Hat tip: Mexfiles.) According to Senator Patricio Martínez — who formerly served as governor of Chihuahua, a border state — the Mexican government should insist on the transfer of about 400 square kilometers that Porfirio Díaz asked for back in 1890. “Díaz was unsuccessful, but Mexico should send a new diplomatic note to Washington to rectify the border limits,as defined in the two 19th century treaties. If Trump refuses, Mexico should seek the intervention of the International Court of Justice, in the Hague.” 

Senator Martínez is planning to fund a commission “to document what has been known since the time of Díaz, that the treaties of Guadalupe Hidalgo and La Mesilla, which set the border between the two countries are not applied, and there are differences and errors in favor of the United States which must be corrected.”

That would be a great plan if there were any evidence that the United States and Mexico had any outstanding border disputes. Sadly, there does not seem to be evidence of any such conflicts, not since the Boundary Treaty of 1970. The idea that the U.S. is sitting on 400 square kilometers of Mexican territory would be an alternative fact.

Why the cartel wars do not cross into America, version 6,493

 Donald Trump has managed to resurrect the fear that Mexican cartels are just waiting, any second now, to extend their murderous rampage into the United States.

Except these guys can’t even carry out a simple hit in Texas without getting caught. And after two years of planning! John Gotti is grave-spinning. 

Sadly, the headline gets the attention; how American law enforcement wrapped it all up rather less. I do wish The Bridge had gone another season.

This is not going to get Mexico to pay for the wall

 Well, now we know Trump’s big leverage over Mexico: force people to show ID in order to make money transfers.

Really, that’s it. That’s the big idea. So let’s briefly unpack it.

First, it would take some time. The Trump administration would need to go through the regulatory process. So this “Day 3” bullshit it just that. 

Second, it would then immediately hit the courts under multiple grounds, not least NAFTA. So more delays.

Third, let’s say it happens. Suddenly, undocumented immigrants can’t make money transfers via Western Union. Well, they would immediately move towards other means. And illegal transfer organizations would spring up. Bitcoin? Well, yes, but as this World Bank report from 2005 discusses, also “ethnic stores, travel agencies, moneychangers, hawala-type systems, courier services, hand-delivery, etc.” Some of which would, in 2017, use Bitcoin to actually send the money. 

This would all raise costs for the migrants sending money home, but it would not stop the flow. So the Trump administration would have to go after them. That can be done, but more delays. (Here Carlos will mention that the administration will be facing massive bureaucratic pushback, slowing things further.) 

At this point the Mexican government has been chuckling at Washington’s blundering for about two year. But finally, somehow, the screws go in. Then what?

Well, to figure out what the Mexican government will do, you need to look at Mexican politics. Half of all remittances go to eight states. Two of them are the D.F. and Mexico State. Those are rich places; no elected officials are going to come under pressure if remittances dry up. Of the top-ten states, few households receive remittances: 10% in Michoacán and Guanajuato; 7% in Guerrero. These households would take roughly a 15% hit to their incomes, with some knock-on effects for local economies. (Page 115.) One good counterfactual might be the Great Recession, which put a big brake on remittances from the United States.  This Banxico paper shows the results. They were unpleasant.

But would they be so unpleasant as to get the Mexican government to pay to avoid them? Uh ... no. First, it is not like Mexican governments are bending over backwards to address rural poverty now. Second, even if all the affected households decided to vote against the incumbent government, the swing would be less than 5%. Third, the swing by people not affected will be more, since, you know, they would be the ones paying the taxes to build the border wall they don’t want.

Note that the above completely avoids any Mexican nationalism. Which is, in fact, a thing and means that no government would pay. So we are back to cancelling NAFTA and ... yes, this is in the proposal ... raising visa fees. Because “even a small increase in visa fees would pay for the wall.”

OK. The U.S. issued 1.5 million non-immigrant visas to Mexicans (including border crossing cards) and 82,476 immigrant visas. Let’s say the U.S. issued $17 billion in 30-year bonds to pay for the wall. You could finance the resulting $804 million annual expense by raising visa fees a mere $502 per visa. A small increase, indeed. I mean, it is possible that demand might go down a tad if the modal visa fee went from $160 to $662.

I am wasting my time, obviously.

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.

Would reality stop Donald Trump on the border?

 Christie endorsed Trump? I am honestly and without hyperbole shocked.

An incoming Trump administration would suddenly realize that Mexican governments are in general quite helpful to the United States. Consider immigration. Two years ago, the U.S. confronted a wave of migration fleeing the violence in Central America. Then it stopped. Why? Well:

Effectively, Mexico took over border security for the United States. Some details. (The source is biased.) Would that make Mr. Trump think twice about diplomatic hardball?

Conversely, there are some worrying signs that the Central American exodus is overwhelming Mexican efforts:

If there is a another migration wave in the summer, would it help Trump in the general? I think not, to be honest. (I actually have some doubts that there will be all that large a wave.) But it would make an ugly election even uglier.

I never did think that the border wall would work but ...

... this is ridiculous.

It looks like some smugglers were trying to use makeshift ramps to move marijuana from Baja into the Imperial Sand Dunes Recreation Area near the Arizona state line. The Jeep Cherokee got stuck on top. The smugglers ran south as the Border Patrol agents rolled up: seems as though they got away with the marijuana.

I guess it’s worth pointing out that the fence is not really built on the border, but about 30 feet north of it. So it’s impressive that they not only got away, but got away with their cargo.

I guess it isn’t quite a Darwin Award moment, but really. A Cherokee over a fence? Caray.