Tariffs and Migration? The wrong tool for the job?

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 comment).

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.

Citations:

www.thedialogue.org...

www.elheraldo.co... (In Spanish)

www.usatoday.com...

money.cnn.com...

www.cnn.com...

Nevermind, response was of partial relevance.

Partial might even be generous.

a reply to: KaDeCo

I guess reality is going to have to respectfully disagree with you...

WASHINGTON (AP) — President Donald Trump says he has suspended plans to impose tariffs on Mexico, tweeting that the country “has agreed to take strong measures” to stem the flow of Central American migrants into the United States.

“I am pleased to inform you that The United States of America has reached a signed agreement with Mexico,” Trump tweeted Friday night, saying the “Tariffs scheduled to be implemented by the U.S. on Monday, against Mexico, are hereby indefinitely suspended.”

He said Mexico has agreed to work to “stem the tide of Migration through Mexico, and to our Southern Border” and said those steps would “greatly reduce, or eliminate, Illegal Immigration coming from Mexico and into the United States.”

He said details would be released soon by the State Department.

AP Link

Your timing was fantastically bad.

a reply to: Lumenari

Not at all. As I said, if the tariffs are meant to reach agreements as well as results of staving migration - then it is successful. However, if migration is not staved, it is bad. And, apparently bad enough to indefinitely place on hold as to not reap the impacts of long-term tariffs.

"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."

and

" 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."

Now, if China had this issue with remittances, that might be a thing too. I wonder if they will buckle.

originally posted by: KaDeCo
a reply to: Lumenari

Not at all. As I said, if the tariffs are meant to reach agreements as well as results of staving migration - then it is successful. However, if migration is not staved, it is bad. And, apparently bad enough to indefinitely place on hold as to not reap the impacts of long-term tariffs.

"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."

and

" 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."

Now, if China had this issue with remittances, that might be a thing too. I wonder if they will buckle.

I apologize.

I have committed the mortal sin of reacting to a title without reading the actual OP.

I'm usually better than that.

Now, having taken the time to READ the OP (banging my head on the desk) you have written a well thought-out topic that seriously needs to be discussed.

And offered a workable solution.

So Cudos for you on this and it has made me want to research it further to see if your solution is doable.

On the face of it, it certainly seems to be.

Again, my humble apologies and thank you for posting something that makes me think.

Only down side I can think of for taxing remittances is the time delay of the pain that would occur.

If I knew the money I planned to send back home was going to be taxed at a greater percentage than I would like I'd just wait before sending the money. Could I out wait the Trump administrations resolve on the issue? I don't know, but the MSM would clearly be on my side. They would immediately declare Trump a failure if Mexico didn't make a deal right away and me waiting helps that.

Tariffs on the other hand may have more collateral damage but are more immediately felt.

a reply to: DanDanDat

The impact of families which receive the money would either require more money sent, or alternative means to be sure. A 10% garnishment could have dire impacts for individuals receiving the money. However, that is a moral argument upon which I am not sure where I stand. I don't think people should suffer, at the same time I think people should follow rules. Some might argue since they migrated here for financial gain (and again I am talking about economic migration) that it would be just and fair to ensure that the gain remains in the USA. Others would argue about suffering in these areas where people are so impoverished they do not have running water, food, and electricity that garnishing the 20 dollar wire transfer from their son is cruel.

If people illegally enter the country to get money to send money back to their homeland, is it our responsibility to facilitate that? If we garnish remittances, should we perhaps take that 8.5 billion generated and invest in humanitarian projects to assist these impoverished nations in means that will provide sustainable alternatives to mass migration? Should we push that 8.5 billion toward the homelessness in the USA? What would 8.5 billion do for the health care reform in the USA? Could we save Social Security? Could we fund border security? Would this be seen as a 'punishment' for people trying to help their families? I have no idea. These are the questions that come to mind when I consider the options.

Either way, I think it would be more devastating to enact long-term tariffs in terms of impoverished communities south of the US border - and a slump economically for the US - if the tariffs are done for political reasons, rather than to bolster and drive competitive local markets.

Hm.

nvm

So, they took a husky chainsaw in to trim a few branches they could have trimmed with a pair of Loppers. It worked, that is all that counts.

a reply to: rickymouse

Kinda, yeah! That's a great way to look at it.

But, I am curious fossil hammer man (which I still love your icon) what you think of garnishing money sent to families 'back home'?

I don't know how they could even do something like that, two different governments are involved, I would think that most of the money would disappear to lawyers.

Maybe tariffs were the wrong tool for the job, we’ll never know.
What we do know is that the mere threat of tariffs got the job done

originally posted by: IkNOwSTuff
Maybe tariffs were the wrong tool for the job, we’ll never know.
What we do know is that the mere threat of tariffs got the job done

BINGO! Tariffs are easy to understand and easy to implement. As selfish money-mongering Neil Cavuto (Fox News) told President Trump 30 minutes before the deal was reached, "Tariffs, Mr. President are WRONG. They are simply a TAX on the Consumer. Find another way!"

Money-worshipping Cavuto doesn't have a strategic mind. In fact, most people still don't understand Trump's strategy, even after seeing how it stopped Kim Jong from Nuke Testing, and how it made Nancy Pelosi suffer a mini-stroke.

a reply to: KaDeCo

I'm sure you are one of the ones complaining of high taxes and inflation ,by not taxing imports will eventually destroy your economy,can't feed a car with an empty tank

a reply to: Oldtimer2

I'm not sure where you got that from. Did you even read the OP? I am genuinely curious.

a reply to: rickymouse

I think they could if they set it up for the companies which transfer money to another individual. Since the transactions are person to person and facilitated through money exchange companies (one that has to be state side to access) then it might work. If they start such companies via apps foreign side it might not.

a reply to: KaDeCo

As another poster on here said, taxing remittances hurts the most vulnerable, while tariffs or the threat of tariffs can effect policy at the government level.

Look at it this way. My in-laws immigrated from India in the sixties. In India at the time they had lots of people and little idea how to produce more income internally. So the policy was to send their biggest resource - people - to work in other countries and send money home. That way they didn't have to do much else. So waves of Indian people went off to Kuwait and elsewhere in the Middle East, various African countries, England, Canada, etc.

I have no doubt Mexico's policy is more or less the same. They are content not to try to develop regional economies and instead turn a blind eye to, or enable, lax border controls and passively encourage their citizens to rely on remittances sent from elsewhere. Tariffs are one way to try to force change within Mexico and their internal policies.

Having said that, it's one thing to crack down on illegals in the construction industry or restaurants, etc. or allow rampant welfare abuse. However, the seasonal nature of farming using migrant labor is often a necessity. Gone are the days when regular school kids could help with the harvest like when my dad was a child. There is definitely a need on both the employee and employer side for casual labor. Where I live, it's a challenge just to find a person to shovel out horse stalls - willing to be up at 5 am to do grunt work, but also be sober during work hours!