NEW YORK – US President Donald Trump seems intent on filling America’s coffers at the expense of other countries and the world’s most vulnerable people. In addition to foreign-aid cuts and steep tariff increases, the administration’s One Big Beautiful Bill Act has introduced a new 1% tax on remittances from the United States that are funded by physical instruments such as cash, checks, and money orders. This “tax on the poor,” as Mexican President Claudia Sheinbaum refers to it, will impose severe economic and social costs on developing countries.
The amount of money sent by migrant workers to family and friends in low- and middle-income countries (LMICs) has increased more than 17-fold over the last three decades, reaching $685 billion in 2024 – more than official development assistance and foreign direct investment combined. Remittances now comprise at least 3% of GDP in more than 77 countries and far exceed the World Bank Group’s annual lending to developing countries ($128 billion) and the International Monetary Fund’s total outstanding loans (around $145 billion).
This immense growth signifies a fundamental shift: remittances are now the most direct and dynamic link between migration and development, serving as both a source of foreign-exchange reserves and as a macroeconomic stabilizing force in LMICs. Trump’s new 1% tax threatens to undermine these global gains and further increase the opportunity cost of brain drain.
The justification for Trump’s remittance tax mirrors that for his trade war. Just as America’s imports have grown faster than its exports, widening the trade deficit, remittance outflows from the US have increased more rapidly than inflows. For example, while around $200 billion was transferred out of the US in the form of remittances in 2021, only $7 billion was sent to the US from other countries – a 34% increase in net outflows from 2017. America is now the world’s top remittance-sending country, with at least 134 recipient countries in 2021 (the most recent year with reliable bilateral data).
Trump’s new tax will have far-reaching consequences. In the US, it is expected to discourage immigration, deter unauthorized employment, and reduce net resource outflows. Preliminary estimates suggest that the levy – which applies to all remittance senders, regardless of immigration or citizenship status – will generate just under $10 billion in revenue over the next decade. And those who share Trump’s zero-sum thinking – that money sent abroad is money not spent on US goods and services – even argue it could boost domestic consumption and growth.
But the global implications are more worrying. Research has shown that transaction cost is a significant predictor of formal remittance volumes, implying that Trump’s tax would reduce these outflows. A decline in remittances, coupled with cuts to international aid, could cause currency depreciation in LMICs, fueling inflation and exacerbating macroeconomic instability. These risks would be particularly acute for countries with high debt burdens, leaving them even more exposed to trade or capital shocks.
In the most vulnerable LMICs, remittances also play an important role at the microeconomic level. These funds allow households to smooth consumption, manage economic shocks, and invest in health and education, all of which are crucial for reducing poverty and improving welfare.
Evidence from Asian developing economies shows that a one-percentage-point increase in international remittances as a share of GDP can reduce the poverty gap ratio by 22.6%. Similarly, a study of 122 developing countries between 1990 and 2015 found that a 10% increase in per capita remittances lowered malnutrition and child mortality rates.
Not only does Trump’s remittance tax threaten to erode these benefits. It also runs counter to the international community’s commitment, as part of the United Nations Sustainable Development Goals, to reduce transfer costs of migrant remittances – which averaged 6.4% at the end of 2023 – to less than 3% by 2030. The higher fees will steer migrants toward informal channels, such as cryptocurrency and hawala, and may even expand the black market for such services, which carries substantial risks.
If there is a silver lining, it is that Trump’s new tax has highlighted the dangers for LMICs of relying on remittances to support economic development and finance essential items such as food, education, health care, and housing. Although steady remittance inflows have lowered the opportunity cost of brain drain, they do not address its underlying causes.
Achieving this will require LMICs to devise economic strategies that support broad-based growth, increase employment opportunities, close technological gaps, and boost productivity. To climb the global value chain and build lasting prosperity, these countries will still need their diasporas – but for their technical knowledge and scientific expertise, not just their money. By contributing to “brain circulation” and technology transfer, migrants would promote development in their home and host countries.
This win-win arrangement depends on improving the investment climate for private enterprise and deepening regional integration, which would enable LMICs to leverage economies of scale for robust economic growth and long-term sustainability. To create a better business environment, policymakers must strengthen regulatory standards and institutions, improve accountability and governance, and address barriers such as financial repression and inadequate infrastructure. Doing so would also increase the likelihood that remittances are used for long-term investments, rather than just for consumption. Moreover, LMICs could diversify their funding sources by offering diaspora bonds at a discounted rate of return.
The Trump administration’s remittance tax is only the latest in a series of punitive US measures aimed at the developing world. More are surely to come. LMICs should recognize that it is in their own interest to break the cycle of dependency and create a virtuous circle of technology-led growth that builds economic resilience while also boosting shared prosperity and mitigating migration pressures.
Hippolyte Fofack
Hippolyte Fofack, a former chief economist at the African Export-Import Bank, is Parker Fellow at the Sustainable Development Solutions Network at Columbia University, a research associate at Harvard University’s Center for African Studies, a distinguished fellow at the Global Federation of Competitiveness Councils, and a fellow at the African Academy of Sciences.
