Since he announced his intention to run for President in 2015, one of Donald Trump's most consistent promises to his supporters has been to build a wall on the Mexican border. And not just that he would build the wall, but that Mexico would pay for it.
Trump is so adamant about building the wall that, so far, he refuses to sign a bill that funds the government — unless it provides $5 billion in funding for the barrier on the southern border. The refusal and the opposition in Congress is leaving hundreds of thousands of federal employees without a paycheck.
Mexican leaders have long stated they will not cut a check to the United States to build the wall. President Trump admitted as much on Thursday , stating that he never expected direct payment. Instead, he insists Mexico would pay for the wall indirectly, through a recently renegotiated trade deal — the US Mexico Canada agreement, or the USMCA.
But it's unclear how the USMCA will provide the $5 billion to the federal government to pay for a border wall, and the White House has yet to explain the economics behind the claim. Here's why the new trade deal likely won't cover the cost of a border wall.
I often said during rallies, with little variation, that “Mexico will pay for the Wall.” We have just signed a great new Trade Deal with Mexico. It is Billions of Dollars a year better than the very bad NAFTA deal which it replaces. The difference pays for Wall many times over!
— Donald J. Trump (@realDonaldTrump) January 11, 2019
1. Only the federal government can pay for the border wall.
Unless every American who owns property on the US/Mexican border agrees to independently build their own steel fence on the southern-most part of their property, the federal government will need to use tax dollars to purchase land, materials and labor to get a wall built. That's why the federal government is currently in a shutdown — because Congress can't agree on how to allocate tax dollars.
2. Companies (and consumers) pay for tariffs — not governments.
The USMCA is an agreement to replace the North American Free Trade Agreement, or NAFTA. Throughout his campaign and since he took office, President Trump has bashed NAFTA, citing a massive trade deficit with Mexico.
Trump's solution was to impose tariffs on foreign-made goods, including steel . It meant that companies in Mexico would have to pay a tax in order to sell their steel in America.
In order for those Mexican companies to maintain their profit margins, they would need to raise the price on their steel.
The higher prices of Mexican steel created an incentive for American companies to buy steel made here. But higher prices meant that those companies paid more for steel material, and they too then needed to raise their prices in order to maintain their profit margins.
The result? American steelworkers were able to sell more product and create more American jobs — but the cost of goods went up, forcing Americans to pay more good made with steel materials.
3. The USMCA provides incentives to countries to AVOID paying tariffs.
If Trump were using trade tariffs as a tactic to get Mexico to the negotiating table, it worked. In November, leaders from Canada, Mexico and the United States signed the USMCA, agreeing to resolve a number of trade disputes.
What the agreement basically does is set parameters for the three countries to avoid taxing each other for imports. For example, if 75 percent of components of a car are made in the US, Canada or Mexico, none of the countries can apply a tariff to import it into the country.
While the USMCA will result lower the prices of certain goods, it doesn't set up much incentive for the US federal government to collect more taxes in order to build a border wall.
4. The USMCA doesn't mention the border wall — or a direct payment to the United States.
If the US won't be collecting more taxes from Mexico in order to build a border wall, the only way the USMCA would fund a border wall would be if the document spells out a direct payment from Mexico to the United States.
Nowhere in the full text of the USMCA (via the Office of the United States Trade Representatives) is there a direct payment from Mexico to the United States spelled out, let alone a payment earmarked for a border wall.
5. The USMCA has not been ratified yet.
On top of everything else, the new trade agreement with the United States, Mexico and Canada still isn't fully in place.
While Mexico, Canada and the United States have all agreed to the terms of the new trade deal, it has not been ratified in the United States. For that to happen, both the House of Representatives and the Senate would need to approve the deal, and the President would need to sign the act into law. According to
Vox
, many economists don't expect the law to be signed until later this year, meaning the agreement wouldn't go into effect in the United States until 2020.
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All in all, the USMCA may help finance a border wall. But it doesn't mean Mexico is paying for it. Even if the new agreement creates jobs and increases federal revenue from income tax, that money is still coming from American taxpayers — not Mexico. And with the agreement yet to be ratified, that increase in tax revenue likely won't be seen for years.
President Trump can still build a border wall, but Mexico likely won't be paying for it — directly or indirectly.