US Border Tax Could Cause Retaliation

President Donald Trump and Congressional Republicans are taking advantage of the party’s control of the federal government to reshape the way U.S. companies are taxed. But one plan could incur the wrath of the global trading community and cost the U.S. hundreds of billions every year.

The tax reform bill created by Speaker Paul Ryan and Representative Kevin Brady, which would create a so-called border adjustment tax, could draw $385 billion in retaliatory tariffs from our trading partners, according to estimates from an economist at the Peterson Institute, a nonpartisan economic think tank.

Under the border adjustment scheme, Washington would not tax exports but would impose an across-the-board tax — probably around 20 percent — on imports into the country. The hope is that the new import tax would help mitigate the big boost to the U.S. budget deficit that’s expected if Trump slashes U.S. corporate taxes. Border adjustment also is seen as boosting U.S. exports and manufacturing.

But countries affected by the tax could retaliate with their own tariffs on imports of American-made products, and could do so with the sanction of the World Trade Organization, the governing body in that kind of trade dispute. We don’t know for sure if the Republican tax plan would trigger WTO-approved retaliatory tariffs, but foreign governments are already laying the groundwork for legal cases — and it’s happened before, though never to the extent that a 20 percent tax on imports could incite.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza