On January 25, President Donald Trump acted on his campaign promise to get the ball rolling on building what he often called a “big, beautiful, powerful wall” situated along the U.S.-Mexico border.
At his speech announcing the executive order at the U.S. Department of Homeland Security, Trump cited drugs pouring across the border, increasing crime, and other national security concerns as the rationale for its construction. The main questions center around who will fund it and if Trump can deliver on his promise to have Mexico pay for it, given Mexico’s President Enrique Peña Nieto canceling a planned trip to the U.S. to meet with Trump in the aftermath of the announcement. Peña Nieto has said Mexico will not foot the bill.
Answering the question about funding, Trump’s press secretary Sean Spicer has revealed that U.S. taxpayers will fork over the money at first, with Mexico paying for it over time through a 20 percent tax on Mexican imports. At least some of those fees, it turns out, could be generated by offering tax incentives to increase U.S. oil exports to Mexico and beyond.
A “border adjustment” is the name of a tax policy which may become part of Speaker of the House U.S. Rep. Paul Ryan (R-WI)’s looming proposed tax reform package. A border adjustment hits imports into the U.S. with a 20 percent tariff, while exported commodities would get a tax refund.
“Under the border adjustment, the United States would refund the tax on exports and charge it on imports — so the net revenue would be negative if we had a trade surplus, and positive if we had a trade deficit,” wrote Marc Thiessen of the American Enterprise Institute, a conservative think-tank, in an article published by The Washington Post. “One of the countries with whom we have a large trade deficit is … Mexico … So if Mexican imports are taxed at a rate of 20 percent, the United States would raise about $13 billion a year in revenue from Mexico via the border adjustment.”
Theissen, pointing to report that says the prospective wall could cost between $15 billion and $25 billion to construct, does the math from there and points out that it could be paid for in two years through such an arrangement.
Spicer cited similar figures in his comments about financing the wall.
“When you look at the plan that’s taking shape now, using comprehensive tax reform as a means to tax imports from countries that we have a trade deficit from, like Mexico,” said Spicer. “We can do $10 billion a year and easily pay for the wall just through that mechanism alone. That’s really going to provide the funding.”
In a January 25 interview with ABC News, Trump had hinted at but did not yet name the border tax adjustment as the potential funding stream for the proposed wall, while also suggesting Peña Nieto was merely posturing in opposing it and will come around to supporting the plan.
“He has to say that. But I’m just telling you there will be a payment. It will be in a form, perhaps a complicated form,” Trump told ABC News. “We will have the wall and in a very serious form Mexico will pay for the wall … I never said they’re gonna pay from the start. I said Mexico will pay for the wall.”
And that’s where exports of oil come into play.
Oil Exports “Made in America”
At the forefront, Rep. Kevin Brady (R-TX), who is Chairman of the U.S. House Ways and Means Committee, has spearheaded the push for the border adjustment tax. He has rebranded it as the “Ending the Made in America Tax.”
Brady’s congressional district houses ExxonMobil’s massive new 385 acre campus north of Houston, and during his congressional career, Brady has received $44,000 in campaign donations from the oil exports-promoting Exxon.
Ending the “Made in America” tax:
☑Levels the playing field
☑Empowers American workers
☑Simplifies the tax code https://t.co/2SLbRNUzdT pic.twitter.com/cc7FHFl7EK— Ways and Means (@WaysandMeansGOP) December 28, 2016
“Ending the ‘Made in America’ export tax will bring our tax code into the 21st century, level the playing field for our businesses and workers, and make the United States a magnet for investment and job creation,” reads the House Ways and Means Committee website. “Most importantly, it will help ‘Made in America’ products compete and succeed anywhere in the world.”
The U.S. has a handful of gas pipelines proposed to cross the U.S. border into Mexico, several of them owned by Keystone XL builder TransCanada and another one owned by Dakota Access pipeline owner Energy Transfer Partners, which would send natural gas obtained via hydraulic fracturing (“fracking”) south of the border.
Mexico, according to U.S. Energy Information Agency data, is currently the largest importer of U.S. crude oil products in the world.
U.S.-Advocated Mexico Energy Privatization
Under U.S. Secretary of State Hillary Clinton, the State Department’s Bureau of Energy Resources advocated for the privatization of Mexico’s energy grid, which at the time was run by state-owned company Petróleos Mexicanos (PEMEX).
“Mexico officials remain extremely sensitive about any public — especially US — comments regarding energy reform and production,” reads a February 2010 cable written by the U.S. Embassy in Mexico, which was published by Wikileaks and previously reported by DeSmog. “We should retain the [U.S. government’s] long-standing policy of not commenting publicly on these issues while quietly offering to provide assistance in areas of interest to the [Mexican government].”
Coming through constitutional amendments signed into law by Peña Nieto in December 2013, the country’s oil and gas industry’s spigots are now open to international companies. And several key U.S. officials who helped make it possible now work as lobbyists, consultants and think-tank analysts where they have continued to crusade for the cause.
Energy Information Agency data also shows that Mexico exports the third greatest volume of crude oil products to the U.S., behind Canada and Saudi Arabia. If the tax scheme passes and as Mexico continues to develop its onshore shale and offshore oil reserves, that volume could rise. Companies looking to ship that oil to the U.S. would then owe a 20 percent tax to the U.S. treasury.
Refiners Oppose, Tillerson Supports Exports
The proposal has split the oil refining and oil-producing sectors, with producers supportive and refiners critical of the tax scheme. A case in point: American Fuels and Petrochemical Manufacturers and Koch Industries have come out against it.
“While companies like Koch who manufacture and produce many products domestically would greatly benefit in the short-term, the long-term consequences to the economy and the American consumer could be devastating,” Philip Ellender, president of government and public affairs for Koch Companies Public Sector, said in a press release. “The proposed border tax adjustment will distort the market, increase consumer prices and create an uneven playing field for companies and consumers alike.”
Trump’s nominee for U.S. Secretary of State, recently retired ExxonMobil CEO Rex Tillerson, said at his Senate Committee on Foreign Relations confirmation hearing that he supports using oil and gas exports as a geopolitical tool. The Democratic Senate Finance Committee staff published a December 8 report in opposition to the tax.
Trump Donor, Aide Harold Hamm Stands to Gain
Wall Street goliath Goldman Sachs recently published a memorandum stating that a border adjustment would serve as a boon for oil exports, but would hurt consumers and domestic refiners, also potentially spiking the global price of oil by 25 percent.
“The proposal means that domestic refiners would lean toward consuming only U.S.-produced crude instead of importing it, and U.S. producers would have ‘incentive only to export crude rather than to sell to domestic refiners as there would be no taxes on exports,’” wrote Marketwatch about the report.
Harold Hamm, the Trump presidential campaign’s top energy aide and a major donor who runs Continental Resources, waged a sophisticated lobbying and public relations campaign and successfully maneuvered the Obama administration to lift the oil export ban in 2015. Hamm sat near the podium at Trump’s inaugural address.
Continental owns the largest net acreage in North Dakota’s prolific Bakken Shale basin, and its oil is set to flow through the proposed Dakota Access, which now has a green light from President Trump. Dakota Access will bring fracked oil from the Bakken to the U.S. Gulf of Mexico-area refineries and the global export market via the connecting Energy Transfer Crude Oil Company Pipeline.
Main Image: The fence between the USA and Mexico along the Pacific Ocean just south of San Diego. Credit: Tony Webster, CC BY 2.0
