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Trump proposes 20% import tax to pay for the wall

27 January 2017, 11:03

Washington - Determined to wall off America's border with Mexico, President Donald Trump triggered a diplomatic clash and a fresh fight over trade on Thursday as the White House proposed a 20% tax on imports from the key US ally and Mexican President Enrique Pena Nieto abruptly scrapped next week's trip to Washington.

The swift fallout signalled a remarkable souring of relations between Washington and one of its most important international partners just days into the new administration. The US and Mexico conduct some $1.6 billion a day in cross-border trade, and cooperate on everything from migration to anti-drug enforcement to major environmental issues.

Cancelled meeting

At the heart of the dispute is Trump's insistence that Mexico will pay for construction of the massive wall he has promised along the southern US border. Trump on Wednesday formally ordered construction of the wall.

The plan was a centrepiece of Trump's election campaign, though he never specified how Mexico would fund the project or how he would compel payments if Pena Nieto's government refused.

The two leaders had been scheduled to discuss the matter at the White House next week. But Pena Nieto took to Twitter on Thursday to say he had informed the White House he would not be coming.

In a speech in Philadelphia later on Thursday, Trump cast the cancellation as a mutual decision. He said that "unless Mexico is going to treat the United States fairly, with respect, such a meeting would be fruitless, and I want to go a different route. We have no choice."

On the flight back to Washington, Trump's spokesperson told reporters the president was considering the 20% import tax to foot the bill, the most specific proposal Trump has ever floated for how to cover a project estimated to cost between $12 billion and $15 billion.

"By doing that, we can do $10 billion a year and easily pay for the wall just through that mechanism alone," Spicer said. "This is something that we've been in close contact with both houses in moving forward and creating a plan."

White House backtracks

Spicer said Trump was looking at taxing imports on all countries the US has trade deficits with, but he added, "Right now we are focused on Mexico."

But the announcement sparked immediate confusion across Washington, and the White House tried to backtrack. During a hastily arranged briefing in the West Wing, chief of staff Reince Priebus said a 20% import tax was one idea in "a buffet of options" to pay for the border wall.

A 20% tariff would represent a huge tax increase on imports to the US, raising the likelihood of costs being passed on to consumers. Half of all non-agricultural goods enter the US duty free, according to the office of the US Trade Representative. The other half face import tariffs averaging 2%.

Mexican Foreign Relations Secretary Luis Videgaray said on Thursday, "A tax on Mexican imports to the United States is not a way to make Mexico pay for the wall, but to a way make the North American consumer pay for it through more expensive avocados, washing machines, televisions."

Mexico is one of America's biggest trade partners, and the US is the No. 1 buyer from that country, accounting for about 80% of Mexican exports.

A complete rupture in ties could be damaging to the US economy and disastrous for Mexico's. And major harm to Mexico's economy would surely spur more people to risk deportation, jail or even death to somehow cross the border to the US - undercutting Trump's major goal of stopping illegal immigration.

- AP

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