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Congressional Republicans want 20% tax on imports from all countries

But Trump not so keen. PLUS: The Republicans' disappearing majority in the Senate | F&P Healthcare mulls shifting manufacturing from Mexico back to NZ.

Sat, 28 Jan 2017

Republicans in Congress have fully embraced Trumpist protectionism – but they are on a different track from the president, and it’s one he seems to have little enthusiasm for.

One of the signature measures discussed at a three-day Congressional Republican policy retreat in Philadelphia, which wrapped up Friday, was a blanket 20% tax on all imports, and the elimination of tariffs on exports.

At first, the Trump Whitehouse seemed behind the plan, with press secretary Sean Spicer told media proceeds from the 20% “border adjustment” could be used to pay for the wall with Mexico (which Mexico has refused to bankroll, or indeed now not even met about).

US pundits say that’s incorrect. Congressional Republicans are looking to deter US companies from manufacturing offshore then exporting goods back to the US. But they also see the border adjustment coupled with a cut to the corporate tax rate – and indeed a major reworking of the way corporations are taxed – that would see no net gain to the US Treasury (although that hasn't stopped major retailers from opposing the idea; they also don't seem to buy the idea the US dollar could rise enough to offset the impact of a border tax).

Later in the day, Mr Spicer watered down his initial remarks, saying the 20% tax was only “one idea”. And White House chief-of-staff Reince Priebus said the Trump administration was considering a “buffet of options”.

"Too complicated"
For close Trump watchers, the Whitehouse’s lack of enthusiasm for the 20% border adjustment tax was not surprising.

Speaker Paul Ryan has been pushing it for some time and positioning it as a cornerstone policy.

But on January 16, Mr Trump told the Wall Street Journal a border adjustment would be “too complicated” – and going by a Forbes Q&A, he has a point; in reality it's less a border tax and more a sweeping restructure and reorientation of the corporate tax system.

The new president seems to favour more targeted measures against Mexico, possibly China, and US companies that offshore manufacturing.

Mr Trump will have one eye on a possible backlash if the cost of consumer goods rises with a universal border adjustment – and it could also complicate the bilateral trade deals he says he wants to pursue.

The Republicans' evapourating majority in the Senate
It will likely take some time to mesh Congress’ and the Whitehouse’s differing views on protectionism.

Two important factors to bear in mind as the horse-trading begins:

One, either a border tax adjustment or measures against specific countries or companies will require legislation from Congress (which also holds all the purse strings). Like most actual policy, it’s beyond the reach of executive orders.

Two, the Republicans have a big majority in the House of Representatives, but only a two-seat majority in the 100-seat Senate, where Republican John McCain has been openly hostile to various Trump initiatives this week, to the degree that he now really has to be regarded as an independent. And a second Republican senator, Lindsey Graham, says he’s against tariffs. They would increase the cost of everything from avocados to automobiles, and threaten the 6 million jobs the US Chamber of Commerce says depend on trade with Mexico. Senator Marco Rubio (or "Little Marco" as Trump ridiculed him during the campaign) has also taken a notably independent tack, peppering a cabinet nominee with hostile questions.

Most Democrats are tariff-friendly, none the least Senator Bernie Sanders, which raises different options for getting protectionist legislation through Congress. However, the party has so far adopted a scorched earth attitude to the Trump era, opposing every aspect of every policy.

So while Mr Trump may prevail, it will be knife-edge stuff.

Protests by liberal grouips are hogging the headlines, but its internal Republican dissension from the likes of Senators McCain, Graham and Rubio who pose the biggest problem to the new president's trade agenda.

I don't want to over-play it: all three are not anti-Trump across the board; McCain and Graham strongly support his plans to build up the military, for example. But all three are also quite comfortable in openly criticizing Trump on a daily basis (McCain and Graham's Twitter feeds are quite refreshingly frank and suckup-free), so the new president could well face a number of setbacks and even defeats as he tries to get his polices through Congress.

Trump era could see F&P Healthcare move jobs back to NZ
F&P Healthcare says if new taxes are introduced on goods produced in Mexico and exported to the US, it may move manufacturing for the American market to its plant in New Zealand (currently the NZX-listed company has two plants: one in Mexico, one in NZ).

There was of course a reason the company opened its Mexico operation, of course: to be more cost-competitive.

Cynics will have to wonder that if it wants to remain that way whether it follow its erstwhile sister company F&P Appliances (now part of Haier) and move manufacturing to China.

But if the 700 F&P Healthcare jobs currently held by Mexicans do shift to Auckland, it will be at least one positive for New Zealand from the Trump era.

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Congressional Republicans want 20% tax on imports from all countries