Border Adjustment Tariff Has Trudeau, Ryan At Odds

Canadian Prime Minister Justin Trudeau is facing off against U.S. House Speaker Paul Ryan over a Republican plan to impose higher tariffs on imports, a key part of the GOP’s tax overhaul.

At issue is the so-called “border adjustment tariff,” part of a corporate plan that would essentially subsidize exports and tax imports. President Donald Trump hasn’t yet committed to the Ryan plan, which would sock imports with a 20 percent tax while exempting exports. Canada sends 75 percent of its exports to the United States.

Canadian Foreign Minister Chrystia Freeland last Thursday talked about the tariff plan with U.S. Commerce Secretary Wilbur Ross, according to a statement published by Reuters.

"The Minister raised the potential implications and costs of any U.S. border adjustment tax on both American and Canadian businesses and families," the statement said.

Trudeau, at an energy conference in Houston, also slammed the border adjustment tariff.

“A border adjustment tax would be bad not just for Canada but for the United States as well,” the prime minister told reporters Friday, according to Bloomberg. “No two countries in the world have the close friendship, alliance, relationship and level of economic integration that Canada and the U.S. have.”

Many U.S. retailers, fearing higher prices to consumers, oppose the tax plan because many of the goods they sell are imports. Even some GOP lawmakers are against the proposal.

Though some retailers stand to benefit from the tax plan, others could lose big, according to a January report by RBC analysts.

"Price elasticity will be a threat to all of the retailers that try to raise prices," RBC said. "Further, we believe the BAT (border adjustable tariffs) will intensify tensions between manufacturers and retailers (e.g., who takes the biggest hit) and consumers will likely experience higher prices. Amazon could also become incrementally disruptive."

Former House Speaker Newt Gingrich last Thursday praised the plan by arguing it would encourage companies to build factories in the U.S.

"The first major step Congress should take is to reform the tax system so companies are incentivized to invest and build factories in the United States and create good-paying jobs," Gingrich said in an op-ed published on Fox News.

Freeland was quoted as threatening retaliation against any move by the U.S. to impose border tariffs. The World Bank has also warned that U.S. import tariffs could trigger widespread retaliation.

See Also:

Winners From A Border Adjustment Tax

Analyst Sees Odds Of U.S. Border Tax Passage Increasing To 75%