How to Interpret the Trump Administration’s Latest Signals on Mexico
Thursday, January 26
The White House floated an idea on Thursday afternoon that, in initial reports, sounded like a major tariff on Mexican imports — something that would have gone a long way toward unwinding one of the United States’ deepest economic relationships.
The reality of what Sean Spicer, the press secretary, suggested is a lot less dramatic. But it sends important signals about how people in the Trump administration are thinking about overhauling the tax code — and how they’re thinking about claiming victory on some of the president’s audacious campaign promises. It is a sign of just how fluid things are in this moment when so much of American public policy around taxes, trade and diplomacy is in flux.
Mr. Spicer suggested a way the administration could accomplish President Trump’s goal of building a border wall paid for by Mexico. A 20 percent tax on imports from Mexico would do the trick, Mr. Spicer said.
That might sound as if Mr. Spicer was proposing that the United States slap a new tariff meant to punish Mexican exporters. Such a move would result in higher prices for American consumers, create profound challenges for industries with supply chains that span the border, and possibly prompt the collapse of the North American Free Trade Agreement.
But you get a different picture when you put Mr. Spicer’s words into the context of the rapidly evolving debate in Washington around overhauling corporate taxation.
He was pointing out that in an overhaul of taxes that House Republicans are considering, imports from all countries would be taxed at 20 percent while American exports would be tax free. It’s called border adjustment, and it would make the United States corporate tax code more closely resemble the value-added tax that is commonplace in other countries.
House Republicans see the policy as a way to reshape the tax code to give businesses less incentive to move operations overseas while also generating revenue they can use to reduce tax rates.
Opponents of the plan, which include major retailers, are skeptical. Among the risks: It could drive up consumer prices for all sorts of imported goods, from German cars to Mexican avocados, if the dollar does not rise as much as economists predict. And the policy may violate World Trade Organization rules, which could tangle it up in legal proceedings.
But that Mr. Spicer was floating that plan as a way to fulfill Mr. Trump’s Mexican wall promises is interesting on two levels.
First, less than two weeks ago, the then-president-elect threw cold water on the House plan. “Anytime I hear border adjustment, I don’t love it,” Mr. Trump told The Wall Street Journal. “Because usually it means we’re going to get adjusted into a bad deal.”
On Thursday, Mr. Spicer was explicitly suggesting that a border tax could be used to pay for a border wall. Referring to the tax plan, he said, “This is something that we’ve been in close contact with both houses in moving forward.”
The border adjustment strategy has plenty of enemies, and there’s no certainty that it will become part of a tax overhaul bill. But the latest tea leaves suggest the administration is more open to it than it may have seemed.
The second lesson from the incident is that the Trump administration looks inclined to be flexible in finding ways to satisfy campaign promises without doing major damage to the economy or international relations.
Thursday was one of the roughest days for relations between the United States and Mexico in some time, with the cancellation of a planned visit by President Enrique Peña Nieto and tough talk from Mexico City, which adamantly refuses to pay for an expansion of a border wall.
But Mr. Spicer’s comments, which he later said were meant more to offer an example than a concrete policy proposal, suggest that the administration will look for creative ways to proclaim victory on Trumpian promises. In other words, he will proclaim that Mexico has paid for the wall as promised — even if the Mexican government never literally cuts a check to pay for new concrete.
Advocates of the border adjustment tax have been fond of it because it would produce enough revenue to allow a deep reduction in tax rates. But money is fungible. So if the president can claim political victory by stating that the revenue from Mexican imports is going to pay for the wall, no one is going to stop him.
It is a messy time for the making of economic policy. The Trump campaign was notoriously light on policy detail, and the Trump administration still has many key vacancies in economic policy jobs. Nominees for Treasury secretary, commerce secretary and U.S. trade representative have not yet been confirmed, and key jobs on the Council of Economic Advisers and most undersecretary and assistant secretary jobs remain unfilled.
So the gaps are still being filled in on what the Trump administration economic policy will really mean in practice. The way to read the latest Mexico comments is as one more hint.