The New Trump Tax
Trumps notion of a 20% border tax on Mexican goods will not ensure Mexicans pay for the wall. At least not entirely. Both Mexicans and Americans will pay for the wall. This result follows from the literature on tax incidence. That is, irrespective of who the tax is levied on via statute who actually pays depends on the elasticities of the supply and demand curves. That is the slopes of the supply and the demand curves will dictate who pays what portion of tax. If the elasticities are equal then the tax burden will fall equally on Mexicans and Americans. If the demand is more inelastic then Americans will pay a larger share of the taxes.
Further, as I have been pointing out, such taxes are a dubious method of protecting or promoting American jobs or job growth. For example, if we import car parts from Mexico, and then use those parts in a factory in say Georgia and produce cars that are exported back to countries like Mexico and others and also for domestic consumption; then limiting this arrangement via a tax may very well reduce jobs on both sides of border. And with those people unemployed on both sides of the border it could lead to a secondary round of job losses as those people reduce their consumption spending.
Trump seems to have a very poor grasp of even rudimentary economic concepts. The idea of opportunity cost seems to elude him completely. Never mind actually doing something like looking at historical examples of protectionism such as the Smoot-Hawley legislation which had a definite role in turning a recession into a depression. And considering that the current expansion is old and has never been particularly robust, enacting a policy that is going to reduce trade, both international and domestic, does not make any sense at all.
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