Border tax may be more harmful to U.S. economy than Canada’s: Morneau

theglobeandmail.com
April 3, 2017

Canada’s finance minister warned business leaders in New York on Monday that a proposed U.S. border tax threatens to make both countries poorer - and might even hurt Americans more.

In an appearance at a World Economic Forum event, Bill Morneau cautioned that a tariff-like tax would sting families on both sides of the frontier by disrupting a mutually beneficial trading relationship and imposing extra costs on U.S. firms.

“Our sense is that there would be an initial negative for both economies - and that the negative may be worse for the United States economy,” Morneau said in a question-and-answer session shortly after he raised his concerns about a border tax in a speech.

“We don’t think it’s a good idea.”

Morneau’s stronger public position against the border tax came after Natural Resources Minister Jim Carr noted last week that the policy faced huge opposition in Washington.

Carr made the comments following a series of meetings in the U.S. capital with lawmakers, administration officials and business people, who he said cast doubts on whether the import tax had any chance of passing in an upcoming omnibus tax bill.

The uncertainty surrounding a border tax has created significant concerns among Canadian companies, many of which rely heavily on exports to the U.S.

Morneau told his audience that the Canadian government had conducted “extremely preliminary” assessments on the potential economic impacts of a tax on U.S. imports.

“As you can imagine, there’s too many hypotheticals to get to an answer that is absolutely clear in that regard,” he said.

Morneau also hailed the strength of the countries’ partnership and argued cross-border trade and investment have been “essentially” balanced over the years.

A border-adjustment tax, he warned, would raise prices for American consumers and could create currency issues with additional challenges of their own.

“Anything, from our perspective, that thickens our border is bad for Americans and bad for Canadians,” said Morneau, who will visit Indiana on Tuesday to meet Gov. Eric Holcomb and business leaders and visit CN Rail’s largest U.S. yard in the city of Gary.

The original border-tax proposal came from Republican leaders in the House of Representatives and is designed to raise revenues to help pay for tax cuts and to repatriate cash and jobs sent overseas by U.S. firms.

The plan would likely rake in a lot of money - the U.S. Tax Foundation estimates US$1.1 trillion over a decade.

However, President Donald Trump has sent mixed messages on the subject and there are signs the border tax would not attract enough support in Washington.

Last week, Democratic lawmaker John Delaney told a panel on Canada-U.S. infrastructure hosted by The Hill newspaper that “it’s never going to happen” because it doesn’t have the votes.

Critics have said the plan would provoke a trade war, international sanctions and make American imports more expensive.

Morneau’s comments on the border-tax plan went further than remarks made by Prime Minister Justin Trudeau last month in Houston.

After delivering a speech, Trudeau said he was “concerned” with extra tariffs or new taxes at the border because the economies are so tightly integrated with goods moving back and forth.

“You’re going to be hurting not just the Canadian economy, but the American economy as well,” Trudeau said.