The importers group on Jan. 27 reacted negatively both to President Trump’s idea of imposing a 20-percent border tax on Mexican goods and to an effort among congressional Republicans to formulate an alternative border-adjusted tax that would eliminate the federal corporate income tax in favor of a tax on all goods and services imported to the United States.
“We view this as very bad policy,” AIIS chairman John Foster told AMM via e-mail, referring to the border-adjusted proposal in the House of Representatives. Foster said such a regime would bring the United States one step closer to adopting a value-added tax (VAT).
“Apparently the idea is that doing this will dissuade the Trump administration from imposing unilateral tariffs and that it will provide political space for corporate tax reductions, which are sure to spark a big fight and undesirable retaliation,” Foster wrote. Aside from being “deemed lacking” in merits, “we have grave concerns (that) a border adjustment opens the door to a VAT-style system in the U.S. down the road.”
Trump’s Jan. 26 proposal of a 20-percent tax on imports from Mexico was met with skepticism from various participants in the U.S. steel supply chain, and other metals suppliers doubted the threat would be taken seriously. Aside from inflaming tensions between the two allies and placing North American Free Trade Agreement relationships in doubt, an estimated 40 percent of imports from Mexico contain American content, meaning a tariff ultimately would harm U.S. producers.
The scenario would be particularly muddled for the scrap trade, which enjoys a robust two-way flow. Trump’s border tax would shred any competitive advantage of the North American network, according to a domestic recycler who does business on both sides of the Mexican border.
“Certainly if this passes in its current iteration, it will be a disaster for the U.S. recycling industry and consumers,” the American recycler said. “It will affect the deeply ingrained supply chain that Nafta has created. It would mean pushing supply back to the lowest-cost nations like (in) Southeast Asia. It will mean undoing the reshoring that we have had from recent years.”
Simply lowering the corporate income tax to 15 percent or 20 percent would be preferable to a border tax, according to Foster.
“It seems that this idea, suggestion, proposal, whatever it is, has not been thought through,” he concluded.
Mei Ling Toh, New York, contributed to this report.