Then, there is the question of whether one can raise revenue by cutting tariffs? After all, the point of a trade agreement is to lower barriers. The answer is actually yes, but not when you cut tariffs to zero. Tariff cuts can raise revenue when the initial tariff is high enough that it seriously restricts trade. As the tariff drops, trade flows can increase. It’s possible that there is less tariff revenue per item, but the increased trade volume means the overall revenue increases. Of course, once the tariff drops to zero, there is no revenue. Further, since the USMCA is meant to replace NAFTA, which already got rid of tariffs, the argument does notapply here. So tariff cuts will not fund the wall.
Next, is it possible to raise money by tightening rules of origin? One of the headline changes of the USMCA is to make it harder for cars to escape tariffs in North American trade by tweaking the “rules of origin.” This actually could raise revenue, but if it does, it will mean the President’s trade team failed in their central goal of driving auto production back to the United States. To see why, consider an auto producer who watches the requirement for North American content jump from 62.5 percent to 75 percent. That automaker, who currently produces across North America, faces a choice: rework supply chains to meet the new requirement, or pay the standard (MFN) tariff for imports from outside the trade bloc. That tariff is currently 2.5 percent. If automakers opt for the tariff, new revenues will come in. But the implication will be that President Trump’s rules of origin are ineffective. In fact, if the automakers are going to pay the 2.5 percent anyway, they may drop their North American content below 62.5 percent, since that threshold will no longer matter. So any revenue from this source is probably not something the President wants to brag about.