By Linda Qiu
Fact Check of the Day
The United States-Mexico-Canada Agreement does not compel Mexico to pay for the wall, and little in it would divert funds from Mexico to the United States.
President Trump has been vague on how Mexico would pay for his border wall and has suggested various ways this could happen — including imposing fees on visas and border crossings from Mexico or paying through “reimbursement.” On Tuesday, he demanded the money from congressional appropriations. Then, on Thursday morning, he said Mexico “is paying for the wall” through the United States-Mexico-Canada Agreement.
The new trade deal does not stipulate that Mexico pay for Mr. Trump’s border wall, nor do any of the provisions in the trade deal divert Mexican funds to finance the wall. The pact simply updated the North American Free Trade Agreement, which allows Mexico, Canada and the United States to trade goods and services with zero tariffs.
Mr. Trump signed the U.S.M.C.A. in November, and it awaits ratification by Congress. There are no official projections of the deal’s effects on tax revenue or economic growth, but experts expressed doubt that the trade agreement could lead to Mexico directly or indirectly paying for the wall.
Key provisions include new rules on automobile production, intellectual property rights and American access to Canadian dairy markets.
“It’s much harder to connect actual provisions of the U.S.M.C.A. to cash for the wall, since they don’t put money in the coffers of the Treasury,” said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics. “Any connection between labor, auto rule of origin and other chapters to the wall is pretty remote.”
Scott Lincicome, a trade expert at the libertarian Cato Institute, said he viewed Mr. Trump’s claim with “immense skepticism,” given that the new agreement merely updates Nafta and that none of the changes will be a major revenue driver. He also noted that “the biggest amount of liberalization is on the Canadian side” — not Mexico’s — through gradually opening Canadian markets to American dairy imports.
Mr. Trump may be suggesting that the new agreement will increase economic activity in the United States, therefore generating enough tax revenue to offset the cost of his wall. The new trade deal is intended to make it less lucrative for American manufacturers to locate production in Mexico by requiring higher wages for autoworkers — a provision that the Trump administration says will shift more car production back to the United States.
But even if that happens, higher economic output in the United States “is not coming at the expense of Mexico. It’s a trade growth effect,” said Mr. Lincicome.
It also remains to be seen just how much the U.S.M.C.A. would contribute to economic growth, and how much revenue it would generate. Most trade agreements actually lead to lower federal revenue from tariffs, according to the Congressional Budget Office, but it’s unclear whether their net effect on federal budgets is positive or negative. Still, any potential increase in federal revenue would come from American taxpayers, not Mexico.
Mr. Trump may have had in mind revenue generated from steel and aluminum tariffs — which are separate from the U.S.M.C.A. Both Canada and Mexico are subject to tariffs on metal exports to the United States, though they are trying to find a way to remove or limit those levies. According to Mr. Hufbauer’s analysis, these tariffs will collect around $5 billion in 2018, with costs absorbed by foreign suppliers and American buyers, not just Mexico.
“Assuming the tariffs remain in place for five years at current levels, maybe the Treasury will collect $25 billion, but that’s pretty hypothetical,” Mr. Hufbauer said.
Reuters reported that President Andrés Manuel López Obrador of Mexico spoke to Mr. Trump on Wednesday, and Mr. López Obrador said they “have not discussed that issue, in any conversation.”
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