WASHINGTON — Canadians concerned about the idea of a tariff-like tax being imposed on all U.S. imports might be pleased to learn the policy faces huge opposition in Washington.
That's the message being taken away from a Washington visit by Canada's Natural Resources Minister Jim Carr.
A series of meetings this week with lawmakers, administration officials, and business people have raised questions about whether that import tax has any chance of passing in an upcoming omnibus tax bill.
"There was very little support for it," Carr told reporters Thursday.
"It's not just that people here are expressing an agreement in principle with free trade. It's that they are specifically saying that a border adjustment tax would not move along the interests of Canada and United States in the energy market, and that was expressed to us with any number of people with whom we met."
Others are putting it more bluntly.
A Democratic lawmaker, John Delaney, told a panel on Canada-U.S. infastructure this week hosted by The Hill newspaper: "Let's face it — it's never going to happen...It doesn't have the votes. We're never going to do it."
Could be revived
That doesn't mean the idea can't be revived in other forms.
The original proposal comes from Republican leaders in the House of Representatives and is designed to achieve two goals shared by many American policy-makers: Raising revenues to offset tax cuts and repatriate cash and jobs sent overseas by U.S. companies.
The U.S. Tax Foundation estimates the proposal would raise a massive amount of cash — US$1.1 trillion over a decade.
The stated logic behind it is that other countries already offer refunds on value-added taxes like the GST when companies export products to the United States, and that those act as an incentive for companies to offshore jobs, move abroad, and export their products back into the United States.
Congressional leaders like Paul Ryan have argued this would remedy that.
A border tax is opposed by a number auto parts manufacturers in Canada. Linamar Corp. CEO Linda Hasenfratz has been the most outspoken.
“The prospect of trying to put some trade barriers up between those countries is extremely troubling,” she said during the 2017 North American International Auto Show.
She noted that the average automotive part crosses a border seven times in North America before it ends up in a consumer’s driveway.
“Can you imagine adding a border tax seven times to these products that are passing back and forth between our borders?” asked Hasenfratz. “It would add enormous cost that no one can bear.”
Possible trade war
Yet critics have warned the idea will provoke a trade war and face international sanctions.
Former Deputy Prime Minister John Manley told Business News Network on March 27 that if the United States implements a border tax, Canada should do the same.
“I can tell you what I would be saying at the cabinet table if the United States imposed a border adjustment tax,” he said. “I’d say, ‘We have to reciprocate. Like, what are we? A bunch of patsies? We’ll have to have one too.’
“And I think other countries would do the same.”
Experts have also said a border tax would drive up the cost of everything Americans import. New vehicles would particularly affected.
For example, Colin Langan, an analyst at UBS Securities, said in February, the proposed border tax could raise average prices in the United States by about eight per cent, or US$2,500 per vehicle.
At the same,researcher Baum & Associates estimated most automakers would need to raise vehicle prices by thousands of dollars to offset the tax.
A border tax has fierce opposition within the White House itself— President Donald Trump has sent mixed messages, while his staff debates the issue.
Yet there was a clue this week that the administration might attempt to find a Plan B that achieves similar goals.
It was embedded in the draft letter on NAFTA the administration sent to Congress. The letter laid out possible U.S. priorities for the NAFTA renegotiation.
One element in that letter said: "Seek to level the playing field on tax treatment."