A tricky tax to push forward protective measures, originating from a country that gifted liberalism to the world, may not be a legitimate option.
The Border Adjustment Tax (BAT), a synonym for subsidizing exports and taxing imports, planned by the House Republicans in the US Congress intends to disown the idea of free trade and competition, originally a brainchild of pre-industrialized US. The tax is an easy ‘means’ to the many ‘ends’ of protecting job losses, trade imbalances, and strengthening the dollar to encourage US businesses to shy away from imports and instead expedite exports. Considering it as a ‘moral measure’ to fix trade deficit where exports are paltry and imports flooding, as in the case with China, it brings out the incompetency of the US to kick-start radical reforms and provide local-manufacturing tax incentives. Without exploring less harming options, going unreasonably to a risky bet is by no means constitutional or democratic. Such a move, more vividly, makes America look incompetent. Why is the US not ready to uproot weak manufacturing policies and install attractive ones to compel US-businesses to suspend imports and manufacture domestically?
It’s an insult to ‘reason’ that extreme measures are hurled in, just because power validates it, when equally accessible and practical measures are in sight and within power to undertake. If implemented, BAT could initially reduce budget deficit by making exports ‘easier and profitable’, and imports expensive. BAT will undoubtedly put initial pressure on all goods consumed in US, adding a 20% increase to consumer goods retail pricing. Since Matthew Shay had warned the government that it could make goods dearer, right from food and clothes to cars and fuel, retailers are boxing with the BAT proposal, as they are the first ones to be affected.
In a much deeper sense, the move to introduce BAT seems to restrict rising imports from China, which Trump unsparingly protested in his campaigns. This claim seemed reasonable when the US China trade deficit stood at $347 billion in 2016. For a product in demand in the US built elsewhere to be brought back and sold after adding layers of profit, thus depriving employment to US workers; this needs urgent attention. And such a concern is more complex than it appears to the critical eye. Formulating a tax with the sole intention of bringing back lost jobs and balancing trade figures, may or may not meet its desired objectives. In anticipation of fulfilling the Republicans’ campaign promise of reversing jobs back to US by introducing BAT, the same tax could significantly raise household consumption cost. BAT will also remain unhelpful when costlier imports will deter foreign buyers to continue buying from US. With multiple trade agreements, economies can easily search for a cheaper alternative, if US products come expensive. Moreover, just in case, if the dollar fails to pick up due to eroding valuations in international investments, the entire BAT motive would backfire, putting immense pressure on the government to contain the consequent inflation. This would immediately refute the premise of BAT’s introduction.
Although BAT is contentious, discussions over its introduction are showing no sign of resting. As for Trump, he is honest enough to accept his allergy to BAT saying that it is ‘too complicated’. Such a tax has no better place than as the last resort of a brimmed trade war, but for now it is safe to suspend its coming and instead look for a more mindful alternative.