President-elect Donald Trump has not yet weighed in on the idea of border adjusted taxation, but he has discussed other tariffs. High on his list of targets are China and Mexico.
A corporate tax overhaul proposal in the House of Representatives would rely heavily on the border-adjusted tax to fund a big cut in the corporate tax rate from 35 percent to 20 percent. The proposed tax would raise $1.1 trillion over 10 years, according to research firm Strategas — though that would cover only part of the corporate tax break.
Proponents of the tax say it should refocus American industry on domestic production — because it taxes imports but not exports — and help create more U.S. jobs. They say the dollar should rise in response, and that should eliminate inflationary pressures from the higher cost of imports. But retailers, refiners and auto makers all see a downside, since they all rely on imports.
The amount of the expected bump up in the dollar — if goods are taxed at 20 percent — is estimated to be as high as 25 percent. However, economists are not in agreement on that, and some say the dollar may not act the way proponents expect it to, resulting in an immediate jump in the price of imported goods.
But any dollar spike would hurt emerging economies. "I think this incoming presidency could accidentally damage the economic tissue of the emerging markets. Emerging markets are very frail," said Blanch.
Oil production is also obviously important to price, and higher prices means that oil that is more expensive to produce can come back to the market. Oil priced above $50 per barrel has helped U.S. shale producers increase output. In the US. last week, producers raised output by nearly 190,000 barrels a day, bringing it to 8.9 million barrels a day.
OPEC and non OPEC producers recently agreed to cut back production to support oil prices, and that has been helping keep oil in the low to mid $50s per barrel. "There's still real questions about the OPEC/non-OPEC deal. It's only getting about 60 percent of compliance. That's what the observations are to date, based on shipping and other monitoring," said John Kilduff of Again Capital.