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International Trade - Trump Proposes 20 Percent Tax on Imports from Mexico
01 February 2017


Peña Nieto L - Trump R


The latest in Trump’s trade tactics is a 20 percent tax on imports from Mexico—essentially over the border wall.

President Trump is committed to building a wall along the border between Mexico and the United States and has ensured that Mexico will pay for it one way or another.

Mexican President Enrique Peña Nieto has, however, repeatedly said Mexico will not pay for the wall and just cancelled a scheduled meeting with the U.S. president rpgrammed for 31 January, announcing his decision Thursday via Twitter after Trump signed an executive order Wednesday to get construction started on the wall.

Trump then took to Twitter saying: “The U.S. has a 60 billion dollar trade deficit with Mexico. It has been a one-sided deal from the beginning of NAFTA with massive numbers…of jobs and companies lost. If Mexico is unwilling to pay for the badly needed wall, then it would be better to cancel the upcoming meeting.”

Former president of Mexico Vicente Fox Quesada responded to @realDonaldTrump saying: “…Mexico has spoken, we will never ever pay for the ####### wall.”

Twitter sparring aside, The White House said Thursday afternoon that President Trump wants to impose a 20 percent tax on all imports from Mexico to pay for the wall, and the measure would be part of a tax overhaul package Congress is considering.

White House spokesperson Sean Spicer said, explaining the tax, “We have a new tax at US$50 billion at 20 percent of imports—which is, by the way, a practice that a 160 other countries do right now,” according to Reuters. Spicer added, “Our country’s policy is to tax exports and let imports flow freely in, which is ridiculous. But by doing it that way we can do USD10 billion a year and easily pay for the wall. Just through that mechanism alone.”

The problem with Trump’s proposed 20 percent tariff, it that it’s unclear whether it can in fact be done as Spicer says.

A source familiar with U.S. trade relations said it’s not clear whether Trump really knows what he’s talking about, as he can’t unilaterally impose such a tax. What’s also unclear is how this could work with NAFTA in place.

Looking at textiles and apparel as of November, 83 percent are eligible for duty free benefits under NAFTA. It could be that a 20 percent tax like this would apply to that remaining 17 percent that don’t benefit, adding to the tariffs they already face, or that anything claiming NAFTA benefits is taxed 20 percent.

At this point, there’s been little in the way of facts to support the rhetoric and those familiar with the matter aren’t yet sure what to make of this move. What is clear so far, however, is that relations between the U.S. and Mexico are likely to be strained.

Mexican leather exports to the US and US hide exports to Mexico could be in the eye of the storm. Mexico has just imposed fumigation regulations of hide shipments from US under threat of such shipments trying to skirt the regulations being seized by Mexican customs.
 

Tara Donaldson – Sourcing Journal

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