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Why US consumers need to worry about BAT

Donald Trump’s new America First trade policy is seen as anti-free trade. His trade policies are expected to benefit certain people at the expense of others, specifically, workers and producers will benefit at the expense of consumers. The retail and the apparel industries will be hit the hardest. There is virtually no garment industry left in the US, so moving manufacturing back to the high-cost US from low-cost Thailand and China will lead to higher prices for apparel. Higher prices mean fewer sales for apparel firms and retailers. This would be a major blow to both of these struggling sectors.

The main reason a border adjustment tax (BAT) is so popular among politicians is that it is not a tariff. A BAT taxes the full value of a product made by a US firm abroad, thus encouraging producers to make products in the US. With BAT, companies that make products in the US and sell them abroad may deduct the cost of making the product and only pay tax on the net profits.

A border adjustment tax will lead to higher costs for many consumer items. The overall impact of a BAT is twofold: imports cost more (higher prices) and exports cost less (more sales for US exporters).