Trump's pet Mexican wall could be financed by import tax

Trump's pet Mexican wall could be financed by import tax

The new tax is likely to bring in $10 billion annually, which can be utilised to build the wall.

The Dollar Business Bureau

Hinting at another major foreign policy shift, Trump has proposed to impose 20% tax on imports from all the countries America has a trade deficit with. The proceeds thereof, the White House said, will finance the construction of a wall on the Mexican border, which was Trump campaign's signature election promise.

Deeming the 20% import tax proposal as one that is practiced by 160 countries, White House Press Secretary Sean Spicer called the US trade policy of taxing exports and letting imports move freely ridiculous. He also estimated that the new tax is likely to bring in $10 billion annually, which can be utilised to build the wall.

"But the other net positive that you have to realise is that through the wall, not only do we secure our border but I think we are going to save additional money that we would have had to spend on tracking down illegal immigrants and on immigration," Spicer said, defending the widely-criticised proposal of a physical barrier between US and Mexico.

"The idea is to show that generating revenue for the wall is not as difficult as some might have suggested. One measure alone could do this. So as we move forward the idea today wasn’t rolling it out or being prescriptive or announce anything, it's to say hey look, it's not that hard to do," he said.

So far, Mexico is the only country implied in the 'border tax' proposal. China's huge trade surplus with US makes it equally vulnerable. More than 40% of US trade deficit in goods comes from China. Canada, Japan and Germany are among other countries that US runs the highest deficit with. It so happens that the top five trading partners of US in terms of volume of trade (goods only) are also the ones that it has the largest deficit with.

US is among the countries running the largest trade deficits in the world, which amounted to $500.4 billion in total, and $762.5 billion in goods alone in 2015. China takes a lion's share of this deficit, which was about $367 billion in 2015. Trump has vowed to bring a sweeping change on this account by reviving manufacturing in America.

The plan intended to deter imports and set right the Balance of Payment (BOP) situation is still in its early stages. It can only be implemented with support from both the houses, which shouldn't be as big an obstacle considering the Republican majority in both, the House and the Senate.

The Dollar Business Bureau - Jan 27, 2017 12:00 IST