WASHINGTON -- The border adjustment tax advocated by some U.S. Republican lawmakers has lost a lot of steam since it was floated last summer, with major industries such as automotive and retailing that heavily rely on imports pressing lawmakers to scuttle the idea.
But auto suppliers aren't letting up in their opposition, touting a new study that suggests the border tax and other trade policies, such as import tariffs aimed at pressuring U.S. manufacturers to relocate overseas factories to the United States, will harm the auto industry and consumers while undermining job creation and economic growth.
Many Republicans on Capitol Hill have expressed skepticism or opposition toward the border tax, but House leaders still are expected to pursue the tax because it is a key revenue raiser that would allow them to offset cuts to corporate and individual tax rates.
Under the border adjustment tax, importers would be taxed at a lower corporate tax rate of 15 to 20 per cent, but they would pay tax on the entire value of the sale, without the ability to deduct input costs associated with any part of the import process, as they can today. Exporters, meanwhile, would be exempt from paying tax on their profit.
The economics of bringing production work back to the United States aren’t favourable for most automotive products under current market conditions, according to the study by Boston Consulting Group and commissioned by the Motor & Equipment Manufacturers Association.
For the North American auto supply chain, a border adjustment tax would add cost to a vehicle but not change the decision on where to manufacture because it still would be cheaper to produce in Mexico, depending on the components or vehicle involved, Xavier Mosquet, managing director of Boston Consulting's Detroit office, said in a briefing for journalists.
On average, a 15 per cent border adjustment tax would increase the cost of vehicles in the United States by US $1,000, while a 35 per cent tariff would raise the price by US $1,145, the study said. A 20 per cent tariff would raise average vehicle cost by US $650.
Similar numbers for Canada haven’t been calculated.
The cost increases would force automakers to pressure suppliers to lower prices, resulting in the removal of three per cent of nonessential parts from vehicles. "Decontenting" would lower supplier revenues and place up to 50,000 U.S. jobs at risk, Boston Consulting said.
The decision to take out optional features will begin with customers deciding how much they can afford and streamlining option package choices, said Ann Wilson, the manufacturers association's senior vice president of government affairs.