I am not saying tariffs are ‘bad’, they surely have their uses, but I am saying should the administration wish to financially incentivize Mexico
or other Latin American Countries to stave the migration into the USA, it might not be the most effective
tool. I am not giving a stance on the
ethical justifications of tariffs and taxation and migration (Oh My!). I am instead attempting to critically thinking about this issue in terms of
effective execution. It would make a lot more sense, if people are not seeking sanctuary or genuine refugee status, to garnish their remittances back
to their homeland as then they are here for economic opportunity. I will explain.
Why Tariffs? Why not Taxation/fees on Remittances?
This is a question that has baffled me for a time. Tariffs, generally, end up costing everyone. It is like cutting off your nose to spite your face.
In example, let us imagine you own a company which requires manufactured goods from another country. The cost of those goods are $100.00, and now
there is a unit tariff on the product of 10%. This cost is not absorbed by the manufacturer. Instead the manufacturer raises their prices 10%, leaving
the purchaser with options to a. pay more for the same unit amount, b. order less of the product for the same price, or c. find another manufacturer.
The initial and some of the progressive (as in increasing) tariffs proposed with Mexico still leave the goods / products / services at a lower cost
than their competitors. The likelihood of option c (for now) is low unless tariffs reach the proposed levels of 25% in October 2019. So, either the
purchaser is going to pay more for the same amount, or order less of the product. The purchaser then either passes the increase of price to the
consumer of the final good or drives the market (supply and demand) into a temporary scarcity driving up the price of the final good.
This is why tariffs tend to be unpopular in terms of policy change, rather than to bolster local markets who can gain a competitive edge. Properly
applied tariffs see local markets who cannot compete with foreign ones because of cost for labor, equipment, regulations, et cetera. However, a market
proposed tariff would incentivize purchasers to consider option c. finding another manufacturer, because there is no point in seeking cheaper goods /
products / services abroad as the price difference becomes favorable for the local markets or is negligible between the two markets.
This said, the talk of a 25% tariff hike by October has prompted Mexico to come to the table to talk about the migration issue, so perhaps it is
effective in those terms, but it is not viable long-term should no agreement be met.
1. It endangers the trade programs the current administration is building to replace NAFTA (if that’s positive or negative I really can’t
2. It does not address the issue that currently Mexico doesn’t have all that many ways to stop hundreds of thousands of people crossing their
country, just as USA does not have all that many ways to stop hundreds of thousands of people entering the United States.
3. Economists indicate it can over the next fiscal year drop employment in the USA 400,000 jobs, as well as Mexico 300,000 jobs. If people are fleeing
Latin American countries for economic reasons, 300,000 workers and their families suddenly have more reason to trek north.
Remittances are simply money sent to others, usually family or friends. Sometimes individuals who migrate to the United States (illegally or no) send
funds back to their families in their country of origin. In 2016, over 38 billion USD was sent from the United States to Mexico alone.
“Remittances are one of Mexico's top sources of foreign income, outpacing oil exports, which totaled $18.5 billion between January and October [in
2018].” according to CNN’s money and economy section.
If we are including other South American countries for 2018 we are looking at astronomical sums where the sending of money to families ‘back home’
can total up to 39% of the national GDP of a country. That total reaches $84,417,000,000 USD for 2018. Considering the example previously, a 10%
remittance fee, garnish, or tax would equate to 8.44 billion. The money transaction companies do not have to increase their prices, as those affected
are only the sender of the remittance and the recipient. The cascade effect, however, will cause foreign local markets see a 10% decrease in spending
power of the local populace as the $100 USD sent is now $90 USD. The sender then has the option to a. send $100 USD knowing there is a 10%
garnishment, b. send 10% more (~ $111 USD) or c. not send anything at all. In which case the money would, ideally, remain in the United States until
other means to transport the money are generated by entrepreneurs.
I think since Congress doesn’t want to play ball here, and they regulate taxation, tariffs might be the only answer the current administration has
to the issues with financially incentivizing Mexico or other countries to curb migration. However, historically speaking (as well as economic
evaluation of this practice indicate) this will not benefit the USA economically in the long-run unless the efforts to stave the migration are
successful. The increase in traffic will continue to develop into increased crisis at the southern border for the USA. In example in May the first
large caravans from South America with hundreds of Overseas Migrants (Africa, Middle Eastern, Asian) were detained. If this is a tactic of tariffs is
merely to drive talks, it is successful. Talks are happening. If it fails to reduce migration, there's more effective tools to achieve the same goals.
edit on 6 7 19 by KaDeCo because: I can't type.