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Economy & Business

Trump's Proposed Border Tax Would Negatively Affect U.S. Consumers


The Trump administration's bold talk of a big border tax on imports from Mexico has deepened a growing rift between the U.S. and its neighbor to the south. A meeting between President Trump and Mexican President Enrique Pena Nieto scheduled for next week was canceled, but the two leaders talked by phone this morning. Donald Trump has said the border tax would be one way to make Mexico pay for his border wall. The Mexican president rejects that. NPR's John Ydstie joins us now to talk about just what form the tax might take and how it might affect American and Mexican consumers and producers. Hi, John.


SIEGEL: So a day after lots of confusion yesterday about just what form the border tax might take. President Trump's chief of staff said the administration is still looking at a buffet of options. What's on offer on the buffet, John?

YDSTIE: Well, let's start with the cherry dessert, shall we, in which the president cherry-picks which companies imports get taxed. For instance, he's talked about taxes of up to 35 to 45 percent on specific products, like GM's Chevy Cruze hatchback made in Mexico.

SIEGEL: Obviously that would hurt GM, probably hurt a lot of its Mexican workers, and also consumers in the U.S. would have to pay more for the Chevy Cruze hatchback. But can a president actually single out a specific company like that?

YDSTIE: Well, no, not according to trade lawyers I've talked to. The president does not have the authority to single out companies like GM and penalize them in that way. But this is the tax that until yesterday the president and his treasury secretary nominee seemed most interested in.

SIEGEL: John, does the president have legal authority to impose tariffs or boarder taxes without action by Congress?

YDSTIE: Well, Article I Section 8 of the Constitution says Congress has the authority to regulate commerce with foreign nations. But over the last century, Congress has ceded a lot of that power to the president. One example is Section 301 of the 1974 Trade Act. It allows presidents to slap tariffs on countries that discriminate against or take unjustified measures against the United States. In Trump's view, Mexico surely meets that standard. President George W. Bush used that law to boost tariffs on some fancy French cheeses during a dispute about hormones in U.S. beef exports.

SIEGEL: Just can't get away from the buffet, can we?

YDSTIE: No, we can't.

SIEGEL: This is the cheese course. But then yesterday, we began to hear talk from President Trump about another option for paying for the border wall through broad tax reform. Here he is talking to Republican lawmakers yesterday in Philadelphia.


PRESIDENT DONALD TRUMP: Well, we're working on a tax reform bill that will reduce our trade deficits, increase American exports and will generate revenue from Mexico that will pay for the wall if we decide to go that route.

SIEGEL: And after that, Sean Spicer, the president's press secretary, said that it would be, quote, "a border adjustment tax" of 20 percent on all imports or at least countries with whom we have a trade deficit. What is a border adjustment tax?

YDSTIE: Yeah, that got a lot of attention because it would be a huge change in U.S. tax policy, and it got walked back by the president's chief of staff who, as we said, described it as just one in a buffet of options.

SIEGEL: Yeah, here's where the buffet comes in. And this would be the very complicated - the gumbo on the buffet.

YDSTIE: The gumbo course, right. A border tax adjustment is straightforward in description but complicated in its effects. It would charge a 20 percent tax on imports and there would be no income tax paid on goods that U.S. companies exported. And the benefit of this tax, according to House Republicans, is that there would be a massive flow of revenues into the Treasury - more than a trillion dollars over 10 years. That would help pay for a huge reduction in the corporate tax rate from 35 percent to 20 percent in the House proposal.

SIEGEL: But wouldn't it also mean consumers, Americans, ending up paying more for imports?

YDSTIE: Well, that's what South Carolina Republican Lindsey Graham was worried about. In a tweet yesterday, he said, put simply, any policy which drives up the costs of Corona, tequila or margaritas is a big time bad idea. Mucho sad.

SIEGEL: Graham moved us from the buffet to the bar.

YDSTIE: Yes (laughter).

SIEGEL: John, thank you.

YDSTIE: You're welcome, Robert. Transcript provided by NPR, Copyright NPR.