President-elect Donald Trump has made news recently with his statements about a “border tax” on U.S. companies. There is a great deal of uncertainty about whether such a tax could or would be implemented, as well as its impact. Here are some questions and answers about Trump’s border tax threat and how it could affect you.
What is a border tax?
As described by Trump and his fellow Republicans, it consists of 2 primary components:
- U.S. companies would pay no tax on revenues from goods exported out of the United States; and
- Corporate tax deductions would be eliminated for goods manufactured overseas and imported into the U.S. for sale.
What is the goal of the border tax?
To encourage manufacturing businesses to move operations back to the U.S. from overseas or keep existing operations in U.S., and to encourage retailers to sell more U.S.-made goods instead of those imported from other countries.
Could a border tax really be implemented?
That depends. Any tax would require an act of Congress. A tax would also have to be broad-based rather than targeting a specific company or companies.
How would a border tax affect businesses?
- It could increase a company’s tax expenses, resulting in lower profits.
- The border tax could cause the U.S. dollar to strengthen against other currencies. If that happens, U.S. goods would be more expensive to import into other countries, meaning that customers in those countries would pay more for goods made in the U.S. – or they could potentially choose not to buy U.S. goods at all.
- The tax would most likely have the biggest impact on automakers, who have the largest international component in their supply chains. The tax would also have a major impact on retailers who import many of their goods from overseas, including companies like Wal-Mart, Target, and Nike.
How would a border tax affect consumers?
- Goods manufactured in other countries and imported to the U.S. could cost more, and those increased costs could easily be passed on the consumers in the form of higher retail prices.
- On the flip side, if the tax causes the dollar to strengthen, that could make goods made in other countries less expensive to import into the U.S., potentially resulting in lower retail prices if businesses pass those savings along to consumers.
How would a border tax affect investors?
- Investors in emerging markets and other countries could experience volatility after such a tax is implemented, mainly due to fluctuations in the value of the U.S. dollar vs. other currencies.
- In the face of uncertainty, investors may seek safety in companies with a strong U.S. manufacturing presence, hoping that these businesses would benefit from the impact of a border tax.
As you can see, there are many unknowns about the potential impact of a border tax on businesses, consumers, and investors. Only time will well how what may happen. In the face of such uncertainty, you may be looking for help managing your financial portfolio. For more information about how we can help you, please contact us today.