Published on March 5th, 2017 | by Steve Hanley
Border Adjustment Tax Bluster Could Blow Back On American Consumers
The Border Adjustment Tax idea began with Donald Trump, who loves making policy that fits in a Tweet. Sadly, he is often short on details about how his hyperbolic histrionics might actually work or what impact his blandishments may have on the very people whose interests he purports to be promoting.
Trump’s blather about Mexican imports resonates with his supporters. Build a wall! Make Mexico pay for it! Protect American jobs! Put America first! All that sloganeering plays well in Peoria. “Currently, when we ship products out of America, many other countries make us pay very high tariffs and taxes, but when foreign companies ship their products into America, we charge them nothing or almost nothing,” Trump told a joint session of Congress last week.
Trade Is Not Always Fair
His words are not without a basis in fact, especially as it applies to China. That country prohibits an American company from manufacturing products within its borders unless it enters into a 50–50 partnership with a Chinese company first. That means they also have to share all intellectual property associated with producing the products. Chinese companies wishing to do business in the US are under no such obligation. That hardly seems fair.
Trump has an almost pathological hatred of Mexico and all the people who live there, referring to them repeatedly as murderers, drug dealers, and rapists. His border tax idea seems rooted more in his desire to punish Mexico and its people than in any economic reality. His tirades completely overlook the fact that Mexico is also one of America’s biggest trading partners. Many American jobs are made possible by manufacturing items for sale south of the border.
Cheap goods manufactured elsewhere have been the engine that has driven the American economy to new heights over the past 20 years. Walmart would still be a tiny little dry goods store in a sleepy town in Arkansas were it not for globalization.
Border Adjustment Tax Proposed By Republicans
Emboldened by all of The Donald’s pandering to his base, Republicans in Congress have decided they want to do some pandering of their own. They have introduced legislation that would levy an across the board 20% Border Adjustment Tax (BAT) on automobiles and automotive parts shipped into the US from other countries, not just Mexico.
The Republicans want to bask in the “We’re making America great again” balderdash being doled out by the same man they all ran away from before the election because they thought he was a raving lunatic. But if sucking up to fear filled voters worked for Trump, it might just work for them, too, so now they are running to embrace him, hoping some of his luster will rub off on them when the 2018 off-year elections roll around,
The Border Tax Is Simpleminded
Auto analyst Alan Baum says it is simpleminded to assume suppliers or carmakers can just flip a switch and suddenly in-source their overseas manufacturing. “We’re at a peak in the market. Politicians want more direct investment in US manufacturing, but this is the exact wrong timing.” Baum says the BAT could shrink the automotive sector by 6.5% or 1.1 million vehicles. “So now the industry would be hurting, and you’re asking them to reinvest in US production, which is absurd.”
Car dealers are also less than pleased with the BAT idea. “This is a really fragile time,” says Paul Ritchie, who owns a Kia and Honda dealership in Hagerstown, Maryland, and a Honda dealership in Altoona, Pennsylvania. “The average consumer hasn’t seen much of an income increase, but car prices keep going up.”
Jason Courter is the chief operating officer of two Honda dealers in the state of Washington. He worries that the border tax would also affect the mix of cars available to drivers in the US. If automakers can’t make a profit on some models, they just won’t be sold in the US any more. That means less competition, which will drive prices up even more. “That’s really strange. This vote [the 2016 election] was supposed to be about less government, but this is about government handcuffing the free market.”
Dealers To Testify Before Congress
Cody Lusk is chairman of the American International Automobile Dealers Association. Lusk is blunt about the BAT. “It’s a recipe for disaster. It’s a tax on consumers, and it means the average car payment goes up by almost $100 a month — and that’s on a car that just goes up by a $2,000 sticker.” Lusk is concerned the BAT could plunge the US back into a recession.
That’s the message he is sending to members of the AIADA. He is urging them to come to Washington to testify to Congress on March 8 and let elected officials know that they are playing with fire. One dealer who says he will be there is Dave Conant, head of Conant Auto Group in Irvine, California. His organization has 1,300 employees and sells $1.2 billion worth of cars annually. One of its dealerships, Norm Reeves Honda, is consistently the biggest Honda dealership by volume in the world.
Car Sales Are Vital To American Communities
Conant is going to Washington because he thinks Congress don’t understand how important car sales are to local communities. It doesn’t matter if the cars on the floor are Fords or Hondas. Even domestic brands import a lot of their parts and will be hurt by a border tax. “I don’t expect customers to think about any of this when they come to buy a car,” Conant says. “If they can’t afford the payment, that’s why they walk out the door.”
Conant wants to tell Congress that sales tax, property tax, and all of the other parts of the economy that are based on the sale of automobiles, including insurance and repair businesses, are vitally important to the revenue streams of local governments. “When we sit down with city managers, they tell us that we’re paying for the parks department, the police, the sheriffs, all of it.”
That’s no exaggeration. A 2015 Center for Automotive Research study found that nearly 7 million Americans are employed directly or indirectly in the auto sector. Combined, they earn half a trillion dollars in income and pay about $300 billion in taxes every year.
Tweeting Is Not The Same As Governing
Last week, Donald Trump admitted that the healthcare industry is really, really complicated. This may have been news to the Blusterer in Chief, but it comes as no surprise to anyone who knows anything about healthcare. Here’s a flash for The Donald and Congressional Republicans: The automotive industry and global trade are also really, really complicated and should be left to professionals, not poseurs trying to pump up their street cred in advance of the next election.
Tweeting is not governing. Trump acts like a person playing chess for the first time. He is unable to see even one move ahead. He and his Republican acolytes are preparing the US economy for a train wreck of epic proportions. As usual, it is the little people who will pay the price for the buffoonery that passes for leadership in the Washington at the moment.