Supply Chain Expertise and Technology Blog by TMC, a division of C.H. Robinson

NAFTA, Tariffs, and a Border Adjustment Tax: Alphabet Soup or a Real Concern?

NAFTA Border TaxTrade policy—it’s a topic that has moved front and center over the past months with the changing administration in the United States. We’re hearing lots of questions about what changes might be on the horizon for global trade and how to consider what might be next. Let’s dig in and discuss some of the top trade related issues.

North America Free Trade Agreement (NAFTA)
The discussion of NAFTA starts with a brief reminder of the Trade Promotion Authority (TPA), signed in June 2015. One key component of TPA was establishing timelines for all trade deals. Therefore, should NAFTA be opened for discussion and possible negotiation, the current administration has an obligation to follow the processes and timelines in TPA. In a key meeting with Congress, the President has agreed to do so.

The first step in that process is a formal notice to Congress that negotiations would begin in 90 days. As of today, that notice has not yet been given. Also, if it does occur, it will be widely publicized. Remember that just because the intent to start negotiations is given, it does not guarantee that there will be a new agreement, or that withdrawal from the current agreement is 90 days away. It simply means the process has begun.

There are some aspects of NAFTA that may not require a renegotiation, but rather are considered “cosmetic changes.” Time will tell what may or may not be renegotiated, should NAFTA be opened for review.

Border Adjustment Tax (BAT)
The Border Adjustment Tax (BAT) has been proposed as part of a comprehensive corporate tax reform package by the House Ways and Means Committee. While the BAT is very complicated, it may only be feasible as part of an overall corporate tax reform package because it essentially applies prevailing corporate tax rates to the portion of goods that are imported. A BAT would be unlikely to move through Congress without a larger corporate tax reform package, which has not yet been proposed.

Tariffs
The U.S. Constitution specifically gives Congress the ability to set “duties, imposts, and excises” in addition to regulating commerce with other nations. However, there are a couple of laws on the books where Congress gave the President the ability to adjust tariff levels in response to economic threats from abroad. While there are cases in which the President may unilaterally adjust tariffs, those changes could result in similar retaliatory changes to tariffs by targeted countries like Mexico or China. Ultimately, changes in tariffs could result in potential export markets being shut off for U.S. exporters; however, that is an extreme situation.

Bottom Line
What’s important to keep in mind in these times of change is that trade will continue around the world. Global trade drives the world’s economies and will continue to do so—under current or future agreements. It’s best to stay abreast of the issues and in contact with your representatives about how trade agreements may impact your business.

Editor’s note: This post originally ran on Transportfolio. Since it’s a timely topic, we wanted to share it with you here on Connect.

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