In light of President Donald Trump’s “America First” trade plan, industry analysts are predicting the retail and apparel industries will be hit hardest, according to Mauldin Economics.
Because most of the garment industry no longer operates in the U.S., these companies will feel the impact of Trump’s proposed tariffs. Subsequently, these companies might choose to relocate their production facilities to the higher-cost U.S., which will cost the consumer more for their apparel goods. Hypothetically, this could result in diminishing sales, as U.S. consumers would be hesitant to spend more money for the same goods.
Here, Mauldin Economics breaks down the issues of a border adjustment tax:
A border adjustment tax (BAT) taxes the full value of a product made by a U.S. firm abroad, thus encouraging producers to make products in the U.S.
With BAT, companies that make products in the U.S. and sell them abroad (exports) may deduct the cost of making the product and only pay tax on the net profits.
The key thing to keep in mind is that a border adjustment tax will lead to higher costs for many consumer items. The overall impact of a BAT is twofold: imports cost more (higher prices) and exports cost less (more sales for U.S. exporters).
While Trump’s tariff proposal is currently in the Congress approval stage, he could still resort to tariffs by decree if Congress does not pass the bill.
Because of the fear over the potential border tax, the CEOs for eight large retailers, including Target, J.C. Penney and Gap, are making their way to Washington D.C. to meet with Trump, according to Reuters. The group hopes to oppose the border tax, saying a 20 percent tax on imported goods would erase profits.
Do you predict Trump’s border tax could impact your business?
