President Donald Trump and congressional Republicans are taking advantage of the party's control of the federal government to reshape the way U.S. companies are taxed. But one plan could incur the wrath of the global trading community and cost the U.S. hundreds of billions every year.
The tax reform bill created by House Speaker Paul Ryan and Rep. Kevin Brady, which would create a so-called border adjustment tax, could draw $385 billion in retaliatory tariffs from our trading partners, according to estimates from an economist at the Peterson Institute for International Economics, a nonpartisan think tank.
Under the border adjustment scheme, Washington would not tax exports but would impose an across-the-board tax — probably around 20 percent — on imports into the country. The hope is that the new import tax would help mitigate the big boost to the U.S. budget deficit that's expected if Trump slashes U.S. corporate taxes. Border adjustment also is seen as boosting U.S. exports and manufacturing.
But countries affected by the tax could retaliate with their own tariffs on imports of American-made products, and could do so with the sanction of the World Trade Organization, the governing body in that kind of trade dispute. We don't know for sure if the Republican tax plan would trigger WTO-approved retaliatory tariffs, but foreign governments are already laying the groundwork for legal cases — and it's happened before, though never to the extent that a 20 percent tax on imports could incite.