×

Trump's border tax smacks of the kind of policy that could cause a depression

A mechanic works on a jet engine at General Electric's GE Aviation factory in Cincinnati.
Luke Sharrett | Bloomberg | Getty Images
A mechanic works on a jet engine at General Electric's GE Aviation factory in Cincinnati.

Corporate solidarity against President Donald Trump's immigration and travel policies has grabbed the headlines this week. But while that opposition from the biggest CEOs from Silicon Valley to Detroit is getting most, if not all, of the attention, you may have missed the fact that an equally potent coalition of big time corporations is standing in strong support of a key component of President Trump's "America First" strategy. And it could backfire on them badly.

It's called the "American Made Coalition" and it's led by GE, Boeing, Oracle, Pfizer, Dow Chemical and others. And all of them are heavily in favor of the border adjustment tax (BAT) plan that President Trump and Congressional Republicans are working on right now. The plan would cut corporate income tax to 20 percent from 35 percent, exclude export revenue from taxable income and impose the 20 percent tax on imports. In other words, it promises to protect U.S. made goods and American manufacturers from what the White House and the GOP call unfair competition.

American Made Coalition spokesman John Gentzel parroted that message Thursday by saying: "American workers and businesses are not competing today on a level playing field with foreign competitors because of an outdated and unfair tax system."

That not only sounds like what we hear from Congressional Republicans, but it's eerily similar to the points President Trump repeatedly made on the campaign trail as well. Suddenly, all those political and economic experts who said the protectionist aspects of the Trump platform was poison to large corporations might have to eat crow.

The question is: are these big companies really acting wisely? Perhaps it makes sense to try to make a friend out of the new power base in Washington. But when the nation's biggest exporters jump excitedly in favor of a tax that would give them an edge over their foreign competitors, shouldn't they be worried about retaliation? A border tax of any kind is not likely to go unanswered and that will cost those exporters for sure.

Yes, there is history of Republicans like President Ronald Reagan imposing tariffs to protect U.S. manufacturers like the semiconductor industry and Harley Davidson. President Trump even cited that history Thursday when he met with Harley's current management at the White House.

But here's the thing, Reagan's protection of Harley Davidson was just for that company and it was temporary. He also never targeted all foreign-made computer chips. And that protection against Japan was also temporary. The Trump and Republican plans look like they'd ensnare all imports and last indefinitely. That smacks of bad trade policy like the infamous Smoot-Hawley tariff that the same President Reagan often blamed for causing the Great Depression. Politicians who claim the Reagan mantle to justify this new proposed policy should be a little more careful with the facts.

"If corporations really want to unleash the American economy and boost jobs, they should force politicians to stick with tax and regulatory cuts and to pare government spending that strangles growth."

And then there's the potential public outcry. Conservatives purists have been slamming this border tax plan with impunity, calling it a clear attack on free trade and an example of crony capitalism. Many liberals will jump on that bandwagon too, just with the different, "protecting the 1 percent!" kind of label. Saving and creating more American jobs is one thing, but until the nation sees strong evidence of that kind of jobs impact, a massive change in our tax and trade laws that protects big corporations may not go down too well on Main Street.

But wait, there's more! America's major retailers from Best Buy to Target are understandably freaking out about this plan. They're the one major segment of the business community not on board with the BAT as it would drive up the costs of their inventories and cut into profit margins big time.

Yet all of the negative blowback, including that near certainty of some kind of retaliatory taxes and tariffs, isn't moving the big exporters off their support for the administration, the GOP Congress, and this border tax plan. And this is indeed a mistake.

But the facts often fight with the power of political emotion. And it's important not to be naive about the political ramifications and emotions connected to the Trump/GOP protectionist plans. There's obviously a decent amount of Americans who support the idea of buying American products first.

A recent Rasmussen Reports poll showed that 83 percent of respondents said it "was important to buy American." And potential outrage against this plan will dwindle if the 20 percent border tax proposal is just another case of an outrageous Trump "Art of the Deal" style opening offer that eventually falls to 5 percent or 2 percent in the end.

That's probably the gambit Boeing, Pfizer, GE and the rest are making. If they add up the positives of a massive slashed corporate tax, the temporary edge a sub-5 percent border tax would give them, and whatever bonds they can forge with the White House and Capitol Hill for backing this plan, they come out ahead.

But what they're forgetting is that they may be handing over too much of their independence to Washington in return for a shorter term gain. If corporations really want to unleash the American economy and boost jobs, they should force politicians to stick with tax and regulatory cuts and to pare government spending that strangles growth.

This kind of sweeping trade protectionism, no matter how many big corporations stand in favor of it, will be bad for them and bad for America in the long run. The same companies and CEOs who can't wait to publicly slam President Trump for his immigration policies, ought to use that same indignation to slam this protectionist streak too.

Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.