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James Bacchus: Border Tax Would Smack U.S. Economy with Higher Prices, Fewer Jobs

Speaker Paul Ryan and other leading House Republicans are pushing a tax plan that would exempt
income from exports from U.S. corporate taxes while denying tax deductions for the costs of imported
inputs of goods and services into U.S. production. This proposed “border adjusted tax” could cause cascading
harm to U.S. consumers, workers, manufacturers, retailers and, indeed, the entire U.S. economy.

In effect, this so­-called BAT would tax imports and subsidize exports. It would discriminate against imported
products by denying them equal competitive opportunities with like domestic products in the U.S. market. At
the same time, it would help U.S. exports shove aside competing products in foreign markets. Sound good? A
brief recollection of Economics 101 suggests otherwise.

Almost any economist will say that the purpose of trade is not to export but to import. Why make or do for
ourselves something we can pay others to make or do for us for less cost, freeing us to use our limited time and
limited resources to make and do what we can make and do relatively better than others? Could gasoline prices increase because of a border tax?

This basic economic principle — called “comparative advantage” — is the same whether we import by buying a
good or a service from next door or from the next neighboring country. The wealth of nations — including our
own — is maximized when we pursue our comparative advantage. Yet this fundamental premise for producing
more national wealth in the form of more competitive jobs and more competitive industries is overlooked in the
“border adjusted tax.”

What would happen if the BAT were enacted? Higher consumer prices would hurt us all, and they would hurt
lower ­income consumers the most. Higher costs due to the loss of tax deductions on imports would send prices
skyrocketing at the nearby grocery or big box store. And higher costs for imported inputs of goods and services
would raise the prices of thousands of U.S.­made products, diminishing their competitiveness in both U.S. and
foreign markets.

Some early predictions should give us pause about the impact of a BAT. Among these predictions, the taxes due
from U.S. companies reliant of imports could exceed their profits, the retail price for gasoline could increase by
30 cents per gallon, and the average cost of a car could increase by $3,300. Moreover, with taxes used to rig the
U.S. market against imports, America would not gain jobs. Instead, many Americans would lose their jobs.
But don’t imports cost us jobs? In fact, imports create jobs, directly and indirectly.

As Anne Krueger, former chief economist for the World Bank, has explained, many U.S. jobs are directly
connected to imports and therefore depend on imports, and still more U.S. jobs are created and supported by
imports because using cheaper (and sometimes better) imports as inputs enables American manufacturers to
compete more effectively with foreign firms in the U.S. and worldwide.

Furthermore, low­-cost imports do not destroy American jobs. Companies that become more competitive by
importing at lower costs can afford to expand at home and abroad, and, thus, to create more jobs. In sum,
Krueger concludes, “Without imports, many jobs that exist today would disappear.” And still more American
jobs would never be created.

There is also the little matter that the proposed “border adjusted tax” would violate U.S. treaty obligations as a
member of the World Trade Organization. Why should we care? One reason why we should care is because — if
we chose not to comply with a WTO ruling against the BAT — we could then face the loss of current trade
benefits guaranteed by the WTO treaty for American workers and producers to the tune of billions and billions
of dollars — annually.

President Trump has sent conflicting signals lately about whether he supports a “border adjusted tax.” He
would be best advised to oppose it — and to advance, instead, policies that value imports as well as exports as
part of an economic policy that reflects an understanding of the vast value of international trade to the
prosperity of the American people.

James Bacchus is a former chief judge of the World Trade Organization, a former member of Congress from
Central Florida, and author of the book Trade and Freedom. He chairs the global practice of the Greenberg Traurig law firm.

Compliments of Greenberg Traurig