The USMCA is not Paying for the Wall

That's not how it works.

Trump tweeted yesterday:

But, of course, that’s not how it works.  It is unclear if Trump actually thinks that somehow $5 billion (or “many billions”) will flow directly into the US Treasury, in which case he is demonstrating an utter lack of understanding of how both trade and federal revenue work (not to mention how budgeting works), or he is lying to cover the fact that he promised something that was never going to happen, i.e., that Mexico would pay for the wall.  It is, of course, possible, that there is some bizarre combination of ignorance and untruth going on here. At a minimum he is marketing his latest failed product to the gullible.

There is also the pesky detail that while the USMCA has been signed, it has not yet been approved by the Congress.  As such, it isn’t even in place yet.  It is hard to spend money that isn’t coming from a deal that hasn’t even been implemented yet.

What’s worse, the USMCA (aka, New NAFTA) is not that different from Old NAFTA. Mostly, in his sophomoric way of governing, Trump managed to get the name changed so that he could claim to have scrapped NAFTA and replaced it with something better.  There are some changes to the parameters of auto manufacturing and a few other provisions that have changed, but New NAFTA is basically a refresh, not a major replacement.  One thing for sure:  it isn’t a funding source for a wall (or anything else).

Bloomberg has a good basic comparison of the changes for those who are interested:  Trump’s ‘Historic’ Trade Deal: How Different Is It From Nafta?

The main thing about New NAFTA is that the basic trade regime from the previous iteration remains in place.  There are some changes of significance to the auto provisions and some new clauses on Canadian dairy and some other miscellaneous changes.  It is important, however, to understand that this is not some brand new deal that radically altered the relationship between these three economies.  This is a far cry from what Trump promised on the stump.

The best argument that one could make (and it is a weak one, nearing nonexistence) is that New NAFTA will fund the wall is that somehow improved economic conditions in the US would lead to increased tax collection, and hence there would be more money for the wall.  The problem is that such activity is pretty diffuse and it would take a while to generate the money for the wall (not to mention, we have a budget deficit, so it isn’t like all of a sudden there is going to be a new pile of cash to pay for a wall).  More importantly, however, there is no reason to assume that this will happen.

To sum up:  this tweet is in many ways a perfect summary of the Trump presidency.  It is a combination of bluster, ignorance, and untruth about a topic that Trump clearly does not understand beyond marketing.  Worse, many of his supporters will believe simple because it is their guy saying it and they are willing to play the role of dupe to Trump’s snake oil salesman routine.

See also, Phil Levy in Forbes:  Can The New NAFTA Pay For Trump’s Wall?  My favorite part of his piece as emphasized below:

Then, there is the question of whether one can raise revenue by cutting tariffs? After all, the point of a trade agreement is to lower barriers. The answer is actually yes, but not when you cut tariffs to zero. Tariff cuts can raise revenue when the initial tariff is high enough that it seriously restricts trade. As the tariff drops, trade flows can increase. It’s possible that there is less tariff revenue per item, but the increased trade volume means the overall revenue increases. Of course, once the tariff drops to zero, there is no revenue. Further, since the USMCA is meant to replace NAFTA, which already got rid of tariffs, the argument does notapply here. So tariff cuts will not fund the wall.

Levy also notes that there is no reason to assume that New NAFTA is going to generate substantial economic growth in the US, meaning that new tax revenues, as noted above, are unlikely to be generated.

Ultimately, this is Trump bloviating his way to convincing enough people that he knows what he is talking about, when he doesn’t.  But, of course, he doesn’t need everyone, he just needs enough customers to buy his BS until such a time as he can move on to the next bit, leaving the rubes behind stuck with the bill for whatever failed product he was able to convince them to buy.  This is Trump Steaks, Trump Vodka, and Trump University.  This is the belief that what people saw on reality TV was actually real.

And the beat rolls on.

FILED UNDER: Donald Trump, International Trade, US Politics
Steven L. Taylor
About Steven L. Taylor
Steven L. Taylor is Professor of Political Science and Dean of the College of Arts and Sciences at Troy University. His main areas of expertise include parties, elections, and the institutional design of democracies. His most recent book is the co-authored A Different Democracy: American Government in a 31-Country Perspective. He earned his Ph.D. from the University of Texas and his BA from the University of California, Irvine. He has been blogging since 2003 (originally at the now defunct Poliblog). Follow Steven on Twitter

Comments

  1. Kathy says:

    Even if the nonsense El Dennison is pushing were so, wouldn’t Canada also be paying for the vanity wall?

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  2. @Kathy: Let’s not get crazy now 😉

  3. Timothy Watson says:

    How is Mexico going to “pay for the wall” if he shuts down the Southern Border like he threaten to do a couple days ago? (Which would probably be a violation of NAFTA/NAFTA 2.0 anyway.)

  4. grumpy realist says:

    Trump really is an idiot.

    May he drown in his own bullish*t.

  5. Kylopod says:

    This is actually a perfect example of how Trump’s ignorance, dishonesty, and pure indifference to the truth work together in combination, rather than being mutually exclusive.

    First of all, this isn’t the first time Trump has made this claim; he tweeted more or less the same thing a few weeks ago. And while it’s conceivable that he’s economically illiterate enough to believe TRAFTA generates federal revenue, he surely knows by now that at the very least this claim has been pushed back on. Earlier a reporter pointed out directly to Sarah Sanders that money from the deal doesn’t go to the Treasury. Maybe Trump dismissed the claim as fake news, but the more likely explanation is that he simply doesn’t care.

    As Kathy noted, the logic of the argument would suggest Canada is also paying for the wall. So the argument isn’t even being made in good faith; it’s just a desperate attempt to make it sound like he hasn’t gone back on one of his best-known campaign promises.

    When Trump made the original “promise,” it wasn’t some serious, concrete proposal. It was little more than macho bluster, the equivalent of saying we’re going to crush Mexico and they’ll be licking our feet. It is also a “promise” that nobody but Trump himself ever really cared about. Coulter and others in right-wing media have busted Trump’s balls over lack of wall funding, but none of them have ever really wanted or expected any serious effort to get the funding from Mexico. The only reason Trump is continuing to make an issue out of it at all is because he’s compulsively incapable of letting anything go. This is the guy, after all, who continued harassing the comedian who claimed he had tiny hands nearly 30 years after the jab was made.

  6. Gustopher says:

    I don’t think I’m ever going to get used to the acronym USMCA. NAFTA could be pronounced, and wasn’t overly close to anything else.

    When I saw the headline, I wondered why anyone thought the Marines were going to pay for the wall.

    The A at the end was mostly lost on me. If pressed, I would have said that the acronym stood for US Marine Corps Of America, which just sounds like a 2018 rebranding of the Marines.

  7. DrDaveT says:

    Even if TRAFTA (thanks, @Kylopod) somehow boosted the US economy by a bunch, for that to translate into dollars for a wall you would have to actually collect the resulting extra taxes. We don’t even collect the taxes that are already owed, because Republicans. If Trump really needed $5B to spend on whatever, the fastest way to get them essentially for free would be to fully fund and staff IRS collection activities.

    (Yeah, I know, not happening — but it would certainly make Trumpist heads explode…)

  8. gVOR08 says:

    @Gustopher: There is a Marine Corps Association, MCA, which is what this sounds like.

  9. gVOR08 says:

    @DrDaveT: Not sure the Trumpists would mind so much, although I expect Trump would tell them to. But the Billionaire Boys Club that owns the GOP would scream like stuck pigs, on the off chance they weren’t able to stop it.

    I think the Ds should run on tax reform. Genuine tax reform. I’d be happy to go to a mix of a VAT and a much lower Income Tax. Happy to trade lower nominal rates for the .1% if it meant they’d actually pay.

  10. Just nutha ignint cracker says:

    @Gustopher: @gVOR08: There’s also an old joke about the “United States Marine Corps Academy” but I can’t remember the details.

  11. Liberal Capitalist says:

    @Timothy Watson:

    How is Mexico going to “pay for the wall” if he shuts down the Southern Border like he threaten to do a couple days ago? (Which would probably be a violation of NAFTA/NAFTA 2.0 anyway.)

    No. You are attempting to apply logic, reason and (worst of all) consistancy. Stop it. You will hurt yourself. Trump doesn’t work that way.

    First, you need to summarize what’s been playing on Fox News TODAY (yesterday is gone already). Then sprinkle in whatever conspiracy du jour is playing on sites like Gateway Pundit, Breitbart and Drudge. Mix liberally thoroughly and then apply the word salad to whatever personal topic pops into his fevered mind.

    Only then can you can decipher the tweets intended for Cult 45.

  12. Sleeping Dog says:

    What I think is bizarre, is that I began following OTB because I wanted intelligent center-right analysis of issues facing the US. Then Tiny came along and we are all liberals now. If it is true that Tiny now owns the Repugs, what political party will emerge that competes for the political center? Frankly, I’m not interested in following the Bernie-crats and AOC.

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  13. rachel says:

    @gVOR08: That was the first thing I thought of. “The Marines!? Why not the Army Corps of Engineers? At least they have experience at construction.”

  14. Just nutha ignint cracker says:

    @Sleeping Dog: Most of us were “liberals” to the GOP and conservatives before Tiny. Conservatives simply don’t want you associating their beliefs with themselves when they can play “it’s Trump! we’re not like that at all, honest injun!”

  15. OzarkHillbilly says:

    @gVOR08:

    I’d be happy to go to a mix of a VAT and a much lower Income Tax. Happy to trade lower nominal rates for the .1% if it meant they’d actually pay.

    No, just no.

    The people who spend all their money just trying to survive would see their taxes go up, the share the wealthy owed would go down and the sociopaths would still cheat every way they could.

    Making tax evasion above a certain amount a capitol offense is a tax reform I could get behind.

  16. Tyrell says:

    @Kylopod: The best solution would be a “tech” wall that would use technology such as strobe lights and sound amplification that would confuse and impede any attempts at entry. A person won’t get far if they can’t see or are very dizzy and disoriented. This would be cheaper, safer, and more effective.
    A physical, steel/concrete wall is outdated.
    See: “The Great Wall” with Matt Damon. Good, but not great.

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  17. Matt says:

    @Tyrell: Over 1900 miles of rave party waiting to happen.. God could you imagine that many strobe lights. It would trigger epileptic seizures in orbit.

    Dumb doesn’t even begin to describe those ideas…

    The electronic wall was working about as well as anything would considering. Funny that the drone patrols stopped once Trump came into office…