Latin America

Will Trump’s Wall Kill Remittances To Mexico?

Remittances — cash payment into Mexico from expats living in the U.S. — are a national cash cow.  In fact, remittances are the largest source of cash that comes into Mexico — and they may now be threatened by President Trump’s widely anticipated announcement of a border wall.

President Trump said repeatedly during his campaign that Mexico would be paying for the wall — either through a payment or tax. Trump at the time noted that a payment was unlikely — but that it would be possible to halt or tax cash remittances as a method of forcing Mexico to pay.

And, now that he’s president, it seems Donald Trump plans to make good on that campaign promise.

“They will reimburse us for the cost of the wall. That will happen, whether it’s a tax or a payment — probably less likely that it’s a payment, but it will happen,” Trump said on January 11.

Mexico’s president is — unsurprisingly — less than enamored with this announcement.

“We must assure the free flow of remittances,” President Enrique Pena Nieto said Monday. Remittances are “an invaluable contribution to national development and indispensable for millions of Mexican families.”

Between January and November of 2016, $24.6 billion flowed back to the pockets of Mexicans from friends and relatives living overseas, according to Mexico’s central bank. In scope — Mexico brings in $23.2 billion exporting oil.

The threatened hit to remittances also comes at an economically tough time for Mexico — the IMF only predicts 1.7 percent growth for the nation in 2017, and the peso is nearing an all-time low. Energy regulation has also seen the price of gas and energy up 20 percent in Mexico of late — which by itself was enough to set off riots and looting.

However, it is not a set-in-stone fact that by taxing remittances, one can really stop the flow of them — so much as push those who wish to send money home to find other methods.  A decade ago, high wire transfer fees pushed in person transfers of funds or people to simply mail cash home.

And we now live in the era of the blockchain and bitcoin — Chinese nationals have gotten very good at using it to skirt currency controls in-nation.  It doesn’t seem impossible that Mexican expats could figure out the same trick to avoid a remittance tax.

“If you tax that money, it won’t necessarily stay in the U.S. It can still go to Mexico through informal channels,” says Ramos.

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