Wednesday 28 June 2017

Trump in tax threat to US companies that move jobs abroad

Donald Trump said companies should be 'forewarned prior to making a very expensive mistake'
Donald Trump said companies should be 'forewarned prior to making a very expensive mistake'

President-elect Donald Trump has threatened to impose heavy taxes on US companies that move jobs overseas and still try to sell their products to Americans.

But the plan could drive up prices for US businesses and consumers and risk setting off a trade war - if it is legal to begin with.

In a series of tweets, Mr Trump vowed to introduce a 35% tax on products sold inside the US by any business that fired American workers and built a new factory or plant in another country.

Mr Trump campaigned on a vow to help American workers but also to reduce taxes and regulations on businesses.

He tweeted that "there will be a tax on our soon to be strong border of 35 percent for these companies wanting to sell their product, cars, A.C. units, etc., back across the border".

Mr Trump said companies should be "forewarned prior to making a very expensive mistake".

Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, said Mr Trump would face a potent legal challenge if he tried to impose taxes, known as tariffs, on specific companies without congressional approval.

Mr Hufbauer also doubted that Mr Trump could identify a group of companies - those that move jobs overseas, then ship goods back into America - for special tariffs.

"I'm sceptical," he said, predicting that courts would block such a move.

University of Michigan economist Justin Wolfers saw another problem with Mr Trump's plan - his proposed tariffs would only hit US companies that build plants overseas and would not apply to foreign firms that ship goods to the US.

"Tariffs are one thing," Mr Wolfers tweeted. "Tariffs that attack only on U.S. firms are another altogether."

Mr Trump made the comments three days after he announced that appliance maker Carrier had agreed to reverse its decision to ship 800 jobs from an Indiana factory to Mexico.

During the presidential campaign, he repeatedly threatened to impose tariffs - 35% on Mexican imports, 45% on Chinese.

Tariffs are meant to give homegrown companies a price edge by making their foreign competitors' products more expensive - and to punish foreign countries for unfair trade practices.

Since Mr Trump's election, his team has described tariffs as a potential tool to be used to pry concessions from America's trading partners.

"Tariffs are part of the negotiation," Wilbur Ross, an investment banker tipped to become Mr Trump's commerce secretary, told CNBC last week.

Tariffs could prove costly. They are imposed at the border, and importers would be likely to try to pass along as much of the cost as possible to their customers.

A 45% tariff on Chinese-made goods could drive up US retail prices on those goods by an average of about 10%, Capital Economics has calculated.

Consumers would probably have to pay up because there are few alternatives to Chinese-made products for many items. China, for instance, produces about 70% of the world's laptops and mobile phones.

Taxing foreign goods could also start a trade war.

The Global Times, a Chinese newspaper, has already warned that China could retaliate by limiting sales of US cars and iPhones and by ordering aircraft from Europe's Airbus instead of America's Boeing.

In 2009, the Obama administration taxed Chinese tyres to protect American tyre makers from a surge in imports. Beijing retaliated with a tax of up to 105% on US chicken parts.

Researchers at the Peterson Institute found that the tyre tariffs probably saved 1,200 jobs in the US. But higher tyre prices cost American consumers an extra 1.1 billion dollars (£865 million) - more than 900,000 dollars (£708,000) for every job saved.

AP

Press Association

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