Donald Trump has become the Republican frontrunner based on a promise to build a giant wall on the U.S.-Mexico border. However, candidate Trump has until recently been vague on the details of the second part of his plan – how, exactly, he planned to compel Mexico to pay for it.
Now Trump has a plan to force Mexico to build his wall. Trump would use powers granted under the Patriot Act, which was passed after the Sept. 11 terrorist attacks, to block remittances to Mexico sent from the United States and to block any non-U.S. citizens from wiring money abroad from the United States.
While a country-by-country breakdown isn’t available, total remittances sent to Mexico by Mexican nationals working and living abroad is estimated to be just under $25 billion and is the largest source of foreign income for Mexico.
The Mexican government, to be sure, is not very happy about this proposal. The head of the Mexican central bank denounced Trump’s proposal as a violation of the property rights of income earners.
While the proposal is morally dubious, there are other problems with restricting remittances. From a practical perspective, the plan is flawed for many reasons. The restriction of remittances ultimately wouldn’t just harm Mexico, it would harm the United States, as well.
Remittances are sent back home by foreign workers – those here both legally and illegally – from money they earn in the United States. Some have gone as far to call remittances a private form of foreign aid. Unlike economic assistance administered by foreign governments, nearly all of it directly reaches the people it is intended to aid. The money strengthens local communities and families instead of an autocrat’s offshore bank account. Also, remittances have shown steady growth, whereas aid provided by governments and private nonprofits varies with economic conditions and the political winds.
If remittances dry up, in order to prop up Mexico and avoid even more dangerous instability at our southern border, the United States likely would be forced to devote more foreign aid. Such aid would not make it directly to the Mexican people as efficiently as remittances would. Much of it would be tied up in bureaucracy.
A crackdown on remittances would be terrible for the United States, as well. Depriving Mexico or any of our major trading partners of such large sums could spark major recessions. In addition to harming the interests of American companies that do extensive business in Mexico – think financial services firms and major Hollywood studios – the reality is, if people cannot feed their families in Mexico, they almost certainly will be forced to migrate to the United States, both legally and illegally. An unstable Mexico would likely breed more violence on the border.
Finally, a crackdown on remittances would damage some American financial institutions. American banks and financial services companies charge fees based on a percentage of the money sent abroad. A remittance ban, no matter how temporary, will have a substantial impact on the bottom line of money-transfer companies like Western Union and MoneyGram. There would also be the fear that a remittance ban could be extended to other countries.
If you believe building a big wall on the Mexican border to deter illegal immigration is a positive public policy idea, then ironically, banning remittances to Mexico could make the problem of illegal immigration worse. Walls can be climbed over with ladders, tunneled under, bypassed or simply breached. Desperate people will do anything to support their families and likely won’t be deterred by a wall.
The first rule of public policy should be “do no harm.” Proposals to ban or significantly curtail remittances violate that simple rule.