Trump spokesman walks back on import tax idea amid uproar, jokes

Roger Yu | USA TODAY

Show Caption Hide Caption Trump considering 20% border tax on Mexico President Trump announced a plan to levy a 20% tax on all imports from Mexico. Veuer's Nick Cardona has the story.

A proposed import tax floated by the Trump administration to pay for a wall along the Mexican border could ultimately be passed on to American consumers.

White House spokesman Sean Spicer said Thursday that the president is considering charging a 20% tax on all Mexican imports as a way to make Mexico pay for the wall — a demand that prompted Trump and Mexico's president to scrap a planned meeting next week.

The idea triggered a cascade of criticism and jokes on social media about Americans facing price spikes on avocados and tequila. Soon after, Spicer said the tax was just one proposal to finance the wall. "The point is, American taxpayers are not going to fund it," he said.

In reality, they would because higher taxes on Mexican imports would mean either higher prices for buyers of those imports or higher-priced American products if the imports are reduced, politicians and economists warned.

“Simply put, any policy proposal which drives up costs of Corona, tequila, or margaritas is a big-time bad idea. Mucho Sad,” Sen. Lindsey Graham (R-S.C.) tweeted.

Simply put, any policy proposal which drives up costs of Corona, tequila, or margaritas is a big-time bad idea. Mucho Sad. (2) — Lindsey Graham (@LindseyGrahamSC) January 26, 2017

Mauro Guillen, global economics professor at the University of Pennsylvania, called the tax idea “insane.”

“What you’re doing is taxing American consumers,” he said. “Everything from Mexico will become more expensive. It’s a pretty big tariff.”

Trump can impose the tax temporarily for 120 days. But a permanent tariff would require congressional approval, hardly a sure thing given Republicans’ longstanding pro-trade stance. If passed, the tariff would wreak havoc on American commerce with its third largest trading partner, which exports a wide range of products to the U.S., including cars, electrical machinery, snacks and produce. A retaliatory measure by the Mexican government would be all but certain.

Trade between the U.S. and Mexico totaled $583.6 billion in 2015, according to the U.S. Trade Representative. Goods brought to the U.S. totaled $295 billion, including products that are sold by American companies but manufactured in Mexico.

If prices of Mexican imports rise, U.S. competitors will likely raise their prices. And demand for those products could plummet if consumers can’t find less expensive alternative sources.

A similar tax on U.S. imports imposed by the Mexican government would make American goods more expensive in Mexico and their market shares would drop. American exports to Mexico supported more jobs — about 792,000 as of 2010 — than exports to China, said Robert Scott, senior economist at the left-leaning Economic Policy Institute. “It’ll cost jobs here and Mexico,” he said.

Among the top imports from Mexico, as of 2015, are vehicles ($74 billion), electrical machinery ($63 billion), other machinery ($49 billion), mineral fuels ($14 billion), and optical and medical instruments ($12 billion).

Mexico is also the United States’ second largest supplier of agricultural products, totaling about $21 billion in 2015. Americans bought about $4.8 billion worth of fresh vegetables from Mexico that year and $4.3 billion of fresh fruit. Wine and beer totaled $2.7 billion.

Trump may look to justify his 20% tax plan by backing a House Republican proposal for a “border adjusted” tax.

Under the World Trade Organization agreement, countries are allowed to impose a sales tax on products coming in through their borders and rebate them on exports. “If they go in that direction, that might help. A border adjusted tax is more justifiable,” Scott says. “It’s more plausibly comparable to what other countries do with their value-added tax and border adjustment.”

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Trump’s proposal would also throw the North American Free Trade Agreement, or NAFTA, into “a turmoil,” Scott said. The U.S.-Canadian-Mexican trade pact, ratified in 1994, waived tariffs on goods traded among its partner nations and has been a boon to the Mexican economy.

U.S. automakers would be particularly hit by the tariff, and the industry has been bracing for a hike in tariffs, as Trump has spoken repeatedly about a 35% boost to discourage American plants from relocating to lower-cost Mexico. “There may even be a small sigh of relief for 20%,” said Michael Harley, senior analyst for Kelley Blue Book.

“I think the biggest concern is that the administration is moving very quickly,” he said. “Automakers are used to taking a lot more time.”

A 20% tariff wouldn't hurt automakers too badly because Mexico's labor costs are about one-fifth those in the U.S., he said. But “it does create another barrier and annoyance, and makes going South much less attractive," he added. “He’s (Trump) trying really hard to make U.S. manufacturing much more appealing.”