The other wall: Today's news for January 27th

We all know about the border wall President Trump is having built between the America and Mexico. But now there will be another wall:

The Daily Beast:

Spicer: Trump Plans 20% Tax on Imports to Pay for Wall

Despite long insisting that Mexico will pay for his promised U.S. border wall, President Donald Trump plans to fund the estimated $15-billion project by taxing U.S consumers. During a press gaggle on Thursday, White House spokesman Sean Spicer said the president has decided that the wall can be funded by a 20-percent tax on imports to the United States.

Unfortunately, this story has revealed a certain economic ignorance in the press:

USAToday:

A border wall could lead to pricier cars, beer

American consumers may have to pay more for products ranging from Toyotas to vegetables to beer, if a proposal by President Donald Trump to impose a 20% tariff on Mexican imports goes into effect.

Trump has floated the new tax as a possible way to finance a wall that would straddle the border separating the U.S. from what is currently its third largest partner in the trade of goods, according to the U.S. Trade Representative.

William Gale, co-director of the Tax Policy Center. says that while a stronger dollar could minimize the pain U.S. shoppers feel, “the irony of putting a tariff on Mexican goods is that, to the extent it raises consumer prices in the U.S., consumers will be paying for the wall, not Mexican producers.’’

Mexico sent $295 billion worth of goods across the U.S. border in 2015, the USTR says. Overall, U.S. imports from its southern neighbor peaked at $316.4 billion that year. That's in contrast to Mexican-bound exports from the U.S. that amounted to $267.2 billion. 

The biggest import is cars, with the U.S. spending $74 billion in 2015 for the hundreds of thousands of Chevrolet and Ram trucks, as well as Fords, Hondas, and Nissans that are assembled in Mexican factories.

But cars are far from the only product that U.S. importers bring in from Mexico. Other key categories include machinery, medical instruments, and mineral fuels.The country is also the U.S.’ second-biggest provider of agricultural products, with imports amounting to $21 billion in 2015.

Time for a little Economics 101 lesson. If you have an object which costs $1, and you raise the cost 20%, that will mean it will now cost $1.20. When a consumer sees the price increase, they can have one of several reactions:

1. They will pay for the object anyway.
2. They will not buy it at all.
3. They will buy a different object.
4. If they buy the object in bulk, they may buy fewer of them.

As you can see, options 2 through 4 all lead to decreased purchasing of the object. The higher a price increase, the more people choose those options. 20% is a fairly steep price increase, especially for cars, which are the biggest import. Going from $20,000 to $24,000 is a pretty steep increase, unless importers absorb some of the tariff in their own profits, which isn't likely since car companies already have fairly low margins on the kind of cars built in Mexico.

Mexico's true cost will come in lost export sales opportunities. This will lead to greater Mexican unemployment, and potentially closed businesses. Expect Mexico to see a severe economic recession soon.

If Mexico was smart, they would offer to help pay for the wall. Even if they only made a token payment of a few billion dollars, it would save them a whole lot of economic pain.

So the American people are technically paying for the wall. But the Mexicans are paying a far steeper price for it.

In other news of America's foreign relations:

Washington Post:

The State Department’s entire senior administrative team just resigned

Secretary of State Rex Tillerson’s job running the State Department just got considerably more difficult. The entire senior level of management officials resigned Wednesday, part of an ongoing mass exodus of senior Foreign Service officers who don’t want to stick around for the Trump era.

Tillerson was actually inside the State Department’s headquarters in Foggy Bottom on Wednesday, taking meetings and getting the lay of the land. I reported Wednesday morning that the Trump team was narrowing its search for his No. 2, and that it was looking to replace the State Department’s long-serving undersecretary for management, Patrick Kennedy. Kennedy, who has been in that job for nine years, was actively involved in the transition and was angling to keep that job under Tillerson, three State Department officials told me.

Then suddenly on Wednesday afternoon, Kennedy and three of his top officials resigned unexpectedly, four State Department officials confirmed. Assistant Secretary of State for Administration Joyce Anne Barr, Assistant Secretary of State for Consular Affairs Michele Bond and Ambassador Gentry O. Smith, director of the Office of Foreign Missions, followed him out the door. All are career Foreign Service officers who have served under both Republican and Democratic administrations.

...One senior State Department official who responded to my requests for comment said that all the officials had previously submitted their letters of resignation, as was required for all positions that are appointed by the president and that require confirmation by the Senate, known as PAS positions.

Basically, this was Trump's call, and not some kind of mass protest.

A true revolution requires a change in the government bureaucracy. Otherwise, a change in leader is only changing the labels on the status quo. Kudos to Trump for recognizing this.

In other news...

The Hill:

US no longer considered 'full democracy,' group says

The United Sates was downgraded from "full democracy" to "flawed democracy" in the 2016 Democracy Index, which cites declining trust in the government as the cause of its new rating.

The report is the Economist Intelligence Unit's ninth annual Democracy Index, which looks at the state of governments across the world. In 2016, the number of "full democracies" dropped from 20 to 19.

The United States' downgrade puts it at 21 in the international rankings, below Japan and tied with Italy.

President Trump, the report says, harnessed that low trust of the government to win the presidency. The report, however, doesn't blame the new rating entirely on Trump, noting the downward trend in trust over the last several decades.

The U.S. has been "teetering on the brink of becoming a flawed democracy" for years, the report says. It cites the decline starting with the Vietnam War in the 1960s, the civil rights movement, the assassinations of Martin Luther King Jr. and Robert F. Kennedy and the Watergate scandal.

America's crony capitalism is beginning to get attention.