AGRI-PULSE: TAX ON MEXICAN IMPORTS TO PAY FOR TRUMP WALL COULD HURT U.S. FARMERS
Jan. 30, 2017
The Trump administration is considering a 20 percent tax on Mexican imports to finance a border wall and that has U.S. farm groups worrying about retaliation and possibly losing a major foreign market for rice, wheat, dairy, pork and many other ag commodities.
White House spokesman Sean Spicer today told reporters on Air Force One that Trump is considering the tariff to pay for the wall and has consulted with leaders in Congress about it. He said the plan could involve comprehensive tax reform as a way to tax imports from countries like Mexico, with which the U.S. has a trade deficit. He said this is a common practice among about 160 countries. Trump puts the trade deficit with Mexico at $60 billion.
"Right now our country's policy is to tax exports and let imports flow freely in, which is ridiculous," Spicer said "By doing it that way (taxing the trade imbalance at 20 percent or so) we can do $10 billion a year and easily pay for the wall just through that mechanism alone. That's really going to provide the funding."
Virtually all agricultural trade with Mexico is tariff-free because of the North American Free Trade Agreement and that's the way U.S. farmers and exporters want to see it remain, according to industry representatives. Trump, however, has called for the pact to be renegotiated.
The plan Trump described is basically the so-called "border adjustable" corporate tax that is a critical part of the House GOP tax plan. It would apply the tax to the value of imported products, but not to U.S. exports. Supporters of the tax argue that it's essentially the same as VAT, or value added tax, which many other countries have.
White House Chief of Staff Reince Priebus said today that the Trump proposal is among a "buffet of options" being considered.
"We would anticipate that (a tax on imports from Mexico) would be immediately met with a reciprocal tariff on our exports, and that could have an absolutely devastating impact on the already-fragile farm economy in the U.S.," said Barbara Patterson, government relations director for the National Farmers Union. "We're very concerned that this is not a very cautious approach and we do not want to see the U.S. enter into a trade war."
The tariff proposal followed Mexican President Enrique Peņa Nieto's announcement - in a tweet this morning -- that he was calling off the planned trip next week to the U.S. to meet with Trump.
Peņa Nieto did not explain the cancellation, but it came a day after Trump ordered a start to the construction of the wall between Mexico and the U.S. as well as new detention facilities for illegal immigrants. Trump had said that he would discuss NAFTA with Peņa Nieto at that meeting.
Trump responded to the Mexican president's snub by telling Republican lawmakers that "unless Mexico is going to treat us fairly ... such a meeting would be fruitless and I want to go a different route."
Farm groups are watching all of the events unfold between the U.S. and Mexican leaders with an overlying concern for keeping trade flowing.
"Mexico is the number-one destination for U.S. rice," said Michael Klein, a spokesman for the U.S. Rice Federation. "If the governments get mad at each other and do anything that upsets the apple cart, we're going to be the ones who pay the price.
The U.S. did not export any rice to Mexico before NAFTA, Klein said. Now the U.S. sells about 600,000 tons per year.
U.S. wheat farmers also do not want to see any friction between the two governments. Farmers here sell about $1 billion worth of wheat to Mexico in most years, according to USDA data. Behind Japan, Mexico is the second-largest market for U.S. wheat.
"Mexico is a critical market for U.S. wheat producers and our top priority would be to keep the border open and see wheat continue to flow duty-free with no tariffs," said U.S. Wheat Associates spokesman Steve Mercer. "Any barrier at all would be a risk."
While farm groups are concerned about maintaining exports, Rep. Lloyd Doggett, D-Texas, is worried about the possibility of more expensive imports from Mexico.
"While claiming that Mexico would pay billions for his unjustified wall, Trump is imposing the bill upon the American taxpayer," Doggett said in a statement. "Now, apparently, a 20 percent tariff on all Mexican imports will do the trick. What carnage! Not only would this disrupt Texas commerce with our most important trading partner, but it would raise consumer prices by 20 percent on many goods, like so much of the fresh produce upon which we rely at this time of year."