Donald Trump has been active in execution of his promised policies. One of his latest initiatives – Trump import tax. Is it the way to fund US-Mexico wall?
27 January, AtoZForex – Donald Trump is considering alternative ways to cover the costs of the wall that he intends to build on the border between the US and Mexico. Earlier during his Presidential campaign, Mr. Trump repeatedly has highlighted that Mexico eventually is going to pay for the wall.
Trump import tax to fund US-Mexico border wall?
The spokesman from the White House has shared one of the ideas on how to pay for the wall. Reportedly, Trump’s proposed 20 percent tax on imports from Mexico and other countries, with which the US has a trade deficit, might be just right for the wall bill.
After such idea has spurred controversy, Sean Spicer tried to reverse it, stating that “it could be a multitude of things.” The tax could be 20 percent or 18 or 5, he stated. He also mentioned that he wasn’t trying to be “prescriptive.” Donald Trump has discussed the plan during a gathering in Philadelphia with congressional Republicans. Following the official order to start construction of the border wall, Mexican President has canceled the upcoming meeting with Donald Trump. Mr. Trump has claimed the decision was mutual.
Mexico is one of the key trading partners for the US. More than $500 billion worth of good are in the circulation each year. Mr. Spicer has mentioned that imposing a 20 percent border tax for imports from Mexico would rapidly cover the cost of the wall construction. He has stated:
“This is the beginning of this plan to make sure it’s done right. It clearly provides the funding and it does so in a way that ensures that the American taxpayer is wholly respected.”
Ryan’s border adjustment tax
Paul Ryan, the House speaker, has noted that the White House and the Congress were on the ‘same page.’ He mentioned:
“We have been and continue to be on the same page about tax reform that supports American jobs and American goods.”
Reportedly, such statement emerged as a result of Ryan’s ‘border adjustment’ tax proposition. The suggestion would affect the corporate rates that are applied to goods and services consumed in the US. Moreover, such rates would not be applied to good and services for the export.
The ‘border adjustment’ tax plan would let companies to deduct export sales, when calculating their taxes. However, in this case, the firms would not be able to subtract the cost of imports. As a fact, under the current tax conditions in the US, the exports are taxed, and import costs are deductible.
In case Donald Trump accepts Ryan’s plan, it would emerge as a reversal. This is due to his recent remarks, where the US President has stated that the ‘border adjustment tax is too complicated.’ He has added:
“Anytime I hear border adjustment, I don’t love it. Because usually it means we’re going to get adjusted into a bad deal. That’s what happens.”
USD following Trump’s protectionism
The US dollar has rallied another 0.5 percent against a basket of six major currencies after Donald Trump stated he intends to impose a 20 percent border tax on Mexico.
The greenback has been appreciating for two days now, as traders turned their attention to Trump’s pro-business policies. Also, markets are anticipating that USD will further gain on the potential border tariffs rise.
Some analysts believe that the proposed border tax in imports will provide the support for the growing USD as the economy adjusted and more capital flew back to the US. However, there are worries that a trade war might have other impact that will make traders to seek for safe-haven currencies., such as the yen or the Swiss franc.
The 4 percent drop in the US dollar throughout past three weeks mirrors hesitations about Trump’s policies in relation to the impact on the currency. Such sentiment is supported by the comments of Trump and Mnuchin. Both of the have highlighted the dangerous ‘strength of USD.’
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