The worrying macro-economics of US border taxes

17th January 2017
by Gavyn Davies

Investors are beginning to focus on the likelihood that the Republican reforms to the US corporate tax regime may well include so-called “border taxes" that will operate like a combination of import taxes and export subsidies.

This research note explains the possible reform, which is likely to be counter to WTO regulations, and could lead to trade retaliation by other countries. Simulations suggest that this part of the US tax reforms may result in a stronger dollar, but may have adverse effects on US inflation, GDP growth and (possibly) equity prices. Any such change to the US tax regime would probably be phased over several years, but could still have market consequences in 2017, as the legislative process gets underway in Congress.

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