By David Cay Johnston*
Donald Trump’s plan to slap Mexican imports with a 20% tariff - and then to use that money to pay for his border wall - makes no economic sense at all. The worst part? Americans will be paying for it with higher prices on food and manufactured goods. Americans, not Mexicans, will pay for the wall.
Trump’s plan to finance his wall with Mexico shows that while he has a bachelor’s degree in economics from an Ivy League school he knows nothing about the subject.
The White House said Trump wants to slap a 20 percent tariff on goods imported from Mexico - car parts, fresh winter tomatoes and oil - to pay for the wall.
That means Americans, not Mexicans, will pay for the wall.
A tariff is a form of tax that raises prices. So tomatoes that cost $1 would rise to $1.20 to cover the tariff.
Sales of Mexican tomatoes might dip a bit because the tariff would make them too costly for some consumers. Gasoline prices would go up, too, because Mexico sells some of its oil to America.
But the economic burden of the tariff would fall almost entirely on Americans in the form of higher prices. Popular dislike for tariffs was a major reason the individual income tax was adopted a century ago.
From June 2015, when Trump announced his campaign, he would not explain how he would force Mexico, a sovereign nation, to pay for his wall. After winning the Electoral College, Trump said Americans would front the cost and recoup it later from Mexico, again without explaining how.
The reality is that Trump does not understand economics and, especially, government finance.
He studied real estate at Penn for two years. By his own account he was gone often, doing real estate deals with his father in New York and as far away as Cincinnati.
“I’m really, really smart,” Trump says, claiming he attended the “super genius” Wharton School, a graduate business school at Penn renowned for its focus on finance. But Trump never attended that graduate school.
That Trump doesn’t know basics every Wharton graduate student learns became clear in lawsuit testimony a decade ago. He said he did not understand accounting. Asked about NPV, or net present value, a basic tool for evaluating whether to make an investment, Trump testified:
“The concept of net present value to me would be the value of the land currently after debt. Well, to me, the word ‘net’ is an interesting word. It’s really - the word ‘value’ is the important word. If you have an asset that you can do other things with but you don’t choose to do them - I haven’t chosen to do that.”
Like his plan to make Mexico pay for his wall, that’s gibberish.
Trump is not alone among his team in ignorance of basic facts. Sean Spicer, Trump’s press secretary, said on Jan. 26 “right now our country’s policy is to tax exports…”
Taxes on exports are prohibited by our Constitution. Article I, Section 9, states “No Tax or Duty shall be laid on Articles exported from any State.”
*David Cay Johnston is a Pulitzer Prize winning US investigative journalist. He featured in this interest.co.nz video interview last year.