World Economy

US Border Tax Plan Could Harm Developing Nations

US Border Tax Plan Could Harm Developing NationsUS Border Tax Plan Could Harm Developing Nations

A new and deadly form of protectionism is being considered by United States leaders, and it could have devastating effects on the exports and investments of developing countries, as well as destabilize the world economy.

The plan, known as a border adjustment tax, would have the effect of taxing imports of goods and services that enter the United States, while also providing a subsidy for US exports which would be exempted from the tax, Asia News Network reported.

The proponents’ aim is to drastically reduce imports while promoting exports, and thus reduce the huge trade deficit in the US. It fits in with US President Donald Trump’s goals to make America great again, to buy American and hire Americans.

On the other hand, if adopted, it would depress the competitiveness or viability of other countries’ goods. The prices of their exports to the US will have to rise due to the tax effect, depressing their demand and, in the worst case, making them unsaleable.

And companies from the US that invested in developing countries because of cheaper costs and then export to the US may find their business affected because their products will cost more.

Some will think of relocating back to the US, and investors will be discouraged from opening new factories in developing countries.

The border adjustment tax is part of a tax reform bill being drafted by the Republican Party, with Paul Ryan, the speaker of the House of Representatives, being the chief advocate.

Speculation on industries relocating to the US is sparking concerns in Malaysia. Major US factories in Malaysia producing electronics would be under watch.

Also, electronic and electrical as well as garment companies in Malaysia, which are mainly sub-contractors for multinational companies, may be affected should they decide to bring back manufacturing jobs to the US.

Also, along with Trump’s plans to build a 2,000-mile border wall, his plans to step up deportations, slap a tariff on products imported to the United States and renegotiate trade deals have all raised ire in Mexico and raised fears of an economic collapse. The Mexican peso has been steadily declining in value against the US dollar.

The plan is bound to generate outrage from its trading partners in both South and North. They may take cases against the US at the World Trade Organization, which is likely to rule against the Americans.

The new tax deduction system discriminates against imports, thus violating the WTO rules of non-discrimination. 

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