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International Trade
  April 26th, 2017 | Written by

Border Tax Would Devastate North American International Trade, Economies

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  • BAT would have major impacts on trade, employment, and economies of the three NAFTA partners.
  • BAT could impact tens of millions of dollars in investments in the US and millions of US jobs.
  • US-Canada trade supports 600,000 direct jobs and 1.7 million total jobs in the US.

The imposition of a border adjustment tax (BAT), as proposed by some in the Trump administration and Congress, would have major impacts on international trade, employment, and the general economies of the three NAFTA partners.

That was a major message in the presentation of Peter Hall, vice president and chief economist for Export Development Canada, at a conference convened by Coface, a global trade credit insurer, in New York last week.

Hall expounded on three scenarios, based on three different BAT levels, and their impacts on crossborder trade and investment and on US employment. The bottom line is that the United States, Canada, and Mexico have become so integrated under NAFTA that the BAT could impact tens of millions of dollars in investments in the US and millions of US jobs.

According to Hall’s numbers, a 3.5-percent tariff would reduce Canadian exports to the US by $8.8 billion, reduce Canadian investment in the US by $40.8 billion, and potentially impact 362,000 US jobs.

A four-percent tariff would reduce Canadian exports to the US by $10.6 billion, reduce Canadian investment in the US by $43.2 billion, and potentially impact 391,000 US jobs.

A 10-percent tariff would reduce Canadian exports to the US by $32.1 billion, reduce Canadian investment in the US by $72 billion, and potentially impact 791,000 US jobs. It would also reduce the Canadian gross domestic product by 3.9 percent.

Trump and congressional Republicans have actually been talking about a BAT rate of 15 to 20 percent.

Hall estimated that US-Canada trade supports 600,000 direct jobs and 1.7 million total jobs in the US.

Trade with Mexico accounts for 1.2 million direct jobs in the US, 360,000 in Texas alone. According to the Woodrow Wilson Center, US-Mexico trade supports five million total                  jobs in the US.

Imposing a border tax would no doubt elicit immediate retaliatory responses from Canada and Mexico, as well as other US trading partners, Hall noted. But tariffs take three to five years to change trade balances, which is the Trump administration’s ostensible goal.