Why the New Trade Deal with Mexico Will Not Pay For a Southern Border Wall

President Donald Trump is on record having once assured enthusiastic crowds that Mexico would pay for his proposed border wall. It is funny that he even went on to give a one-time payment proposal. Now, he says that the wall would be funded indirectly through new revenue streams r savings created by a negotiated trade deal. However, it remains unclear how the US-Mexico-Canada agreement (USMCA) would pay for a 2,000-mile long southern border.

What is all this fuss about?

There are huge political obstacles and economic uncertainties standing in the way of the outcome President Trump is predicting. It is evidently clear that the USMCA’s fate is uncertain in Congress. Notably, there are economic qualms about how possible revenue streams indirectly created by the USMCA would be siphoned toward the wall.

Meanwhile, Trump continues to insist that Congress approve funding for the wall. Democrats refuse to budge in their opposition to the barrier. Consequently, a large part of the federal government remains closed for more than 25 days.

During his campaigns, Trump would relentlessly insist that Mexico would pay for a concrete wall along the border. In fact, this was a central feature of his rallies. Nevertheless, Mexican leaders categorically stated from the start of Trump’s presidency that they would not finance the multibillion-dollar infrastructure project. Such a project would take several years to complete and would probably face countless legal challenges. Trump has continually argued that the wall is necessary. He claims that there is a “crisis” and an “invasion” occurring at the southern border.

In December, Trump went on twitter to say that Mexico would be “paying (indirectly) for the Wall through the new USMCA.” He also claimed that the USMCA would bring “far more money” to the US than the North American Free Trade Agreement (NAFTA). Recently, Trump retaliated to the standoff with the Mexican leaders saying that Mexico would pay for the wall through USMCA. “Obviously, I never meant Mexico would write a check,” Trump said, just a few days ago.

Trade deal still not approved

Even if Trump successfully negotiated billions in funding for his wall, the USMCA would not start paying for it. This is because his proposal is yet to be passed. Although Trump signed the deal in November, both chambers of the US Congress must approve the deal before it takes effect.

Minority Leader of the United States House of Representatives, Nancy Pelosi, recently called the deal “a work in progress.” In October, the Washington Post reported that the USMCA is expected to go into effect in 2020. Reportedly, the USMCA deal leaves intact much of NAFTA. That is the trilateral agreement that Trump has long excoriated as among the worst ever made.

Revenue Uncertainty

Take, for instance, the event that all three countries involved passes and ratify the NAFTA update. Experts are not sure how any additional revenue or savings will be used to pay for a southern border wall.

Chad Bown, an expert at the PIIE says that there may be no change in revenue collected from USMCA tariffs. He continued to explain that United States charges zero tariffs on trade with Canada and Mexico under both NAFTA and USMCA. Kenneth Smith Ramos, one of Mexico’s former chief NAFTA negotiators, said that nothing in the USMCA would redirect money toward a wall.

“I do not see any scenario under which the U.S. government will get more money from Mexico per se,” said Lori Wallach. Lori is the Director of Public Citizen’s Global Trade Watch. She added that the US tariffs have been raised and that would be paid by Mexican exporters and not the government.

Meanwhile, the white house remains silent on how the USMCA is expected to fund the wall.  The office of U.S. Trade Representative, Robert Lighthizer, has not responded to requests to elaborate on how the USMCA will fund the wall.

Few options as shutdown drag on

Meanwhile, Pelosi and Senate Minority Leader Chuck Schumer have been in talks with the Trump administration. The talks aim to ensure that the government funds nine federal agencies hobbled by a partial government shutdown. However, the negotiations have imploded in recent days.

President Trump is demanding that any spending package to fund those agencies include more than $5 billion for a steel barrier. According to the Office of Management and Budget, $5 billion would cover fewer than 250 miles of the U.S.-Mexico border. Pelosi and Schumer have said that they are open to addressing border security but will not agree on any border money.

As the negotiations flame out, Trump may opt to tackle this issue through a declaration of a national emergency. In recent days, Trump has floated the possibility of declaring a national emergency to bypass Congress and fund the wall. He says that this move is the “absolute right” to do in the face of the “national security crisis”.