Emerging market economies appear to be exposed to the border adjustment tax (BAT) policies proposed by U.S. politicians ahead of a crucial window for major tax reform, according to a team of analysts at Bank of America Merrill Lynch (BofA).
U.S. President Donald Trump has long-advocated plans to lower tax rates for U.S. businesses and Republicans in the House of Representatives have since proposed the implementation of a 20 percent levy.
The suggested BAT would likely be imposed on U.S. imports, which Republicans have argued would raise $10 billion each year for the world's largest economy to invest back into the country. However, several large retailers have criticized BAT and argue the tax on lower-cost imported items could be passed on to consumers.
Market expectations, should the tax reforms be implemented before the summer, are for the U.S. dollar to appreciate by around 15-25 percent.
"We are perplexed at how casually (the) consensus predicts a 25 percent U.S. dollar rally if a 20 percent Border Adjustment Tax (BAT) is passed," a team of analysts at BofA said in a note published Wednesday.