Alternative to mooted 20% impost on imports would disrupt global supply chains
While Trump and his economic advisers have yet to present any concrete details around the idea of a “reciprocal tax,” the idea should not be dismissed. According to news reports, the Trump administration’s draft negotiating objectives for revamping the North American Free Trade Agreement with Mexico and Canada include securing “reciprocal” treatment of American exports. Furthermore, U.S. Commerce Secretary Wilbur Ross has indicated that the U.S. will seek to level the playing field on the tax treatment of imported goods. In this context, a similar bilateral trade renegotiation with other countries, especially China and Germany, must not be ruled out.
The U.S. Congress is mulling a separate proposal that would implement a blunt 20% import tax on foreign products. But the legislature’s proposal has already attracted significant opposition from various retail associations and industry groups in the U.S. The “Americans for Affordable Products” coalition, which comprises more than 200 companies, including multinational retailers such as Nike and Walmart, has opposed any “border-adjusted tax,” arguing that an across-the-board import tax would lead to significant price increases for average American consumers.
The controversial plan has also attracted questions over whether it is consistent with World Trade Organization rules. The intensity of opposition to the legislature’s proposal may well produce a significantly watered-down version that would tax imports either at a much-reduced rate, or not at all.
It is in this context that the idea of “reciprocity” starts to look more realistic. If the “border-adjustment” part of the proposed tax plan fails in the U.S. Congress, Trump will likely push forward the idea of “reciprocity” and “fair trade” through bilateral deal-making on tariffs. In March, Trump took the first step in this direction by ordering the Commerce Department to study the effects of “non-reciprocal” trade between the U.S. and its trading partners.
Export-driven countries are staring at a fresh round of bilateral negotiations on taxes and tariffs with the U.S., which represents almost 30% of the world’s consumer market, in order to remain competitive in global supply chains. Trump’s “tax wall” promises to disrupt existing global production networks by forcing changes in how countries tax goods moving across borders.
Source: Nikkei Asian Review