Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

What do shoes, shirts and handbags have to do with Wall Street? Nothing much ordinarily, but that might change if a U.S. border adjustment tax becomes a reality.

It all depends on how Asian suppliers deal with the proposed levy. The impact on them would be uneven, and not just because they have different levels of exposure to the American market. Some, like Li & Fung Ltd., might even benefit by helping global retailers navigate a confusing barrage of tariff structures, Gadfly's Shelly Banjo has argued.

Tax Tremors
Asian clothing and shoe suppliers have been hurt by U.S. border-adjustment tax rhetoric
Source: Bloomberg
*Market capitalization weighted average of 11 stocks tracked by Credit Suisse.

But investors aren't too sanguine, as this share price chart of some of the largest Asian vendors tracked by Credit Suisse shows.

Shareholders' fears are well founded. Should President Donald Trump adopt a 20 percent destination-based corporate tax, also known as a border adjustment tax, U.S. merchandise importers won't be able to claim a deduction on expenses incurred overseas (including labor costs). It would have the same effect as an additional levy on top of the existing average U.S. tariff of 11.5 percent on textiles and 17 percent on footwear imports.

The pain would likely be shared three ways. Shoppers at Wal-Mart Stores Inc. and J.C. Penney Co. would have to pay more; the retailers would have to accept a thinner profit margin; and their suppliers in Asia would be forced to accept lower prices.

It's hard to predict the outcome of that complex bargaining process. But if it leads to a 5 percent drop in the price received in Asia, then the $1.9 billion profit of 11 Hong Kong and Taiwan-listed vendors on $36 billion of combined revenue could drop by a fifth. Stella International Holdings Ltd., Yue Yuen Industrial Holdings Ltd., Li & Fung and Makalot Industrial Co. could be the "most sensitive," according to Credit Suisse. 

If Border Tax Comes
A 5% cut in ex-factory prices for Asian suppliers could cause their earnings to tumble
Source: Credit Suisse

That isn't all. Should U.S. import volumes also slide, the impact could be even fiercer. Conversely, if the dollar rises in response to the tax, some of the pain for Asian exporters could ease. A weaker home currency, however, would mean a higher cost of living in Asia. That might be doubly worrisome if practically every country in the region -- from China, India, Indonesia, and Thailand to Pakistan, Bangladesh, Vietnam and Sri Lanka -- started losing jobs in labor-intensive production.

Retaliation would be almost inevitable. U.S. banks' hopes to put their capital to work in Asia, especially if Trump's review of Dodd-Frank rules gives them additional leeway, could come a cropper if governments in the region block their expansion.

The likelihood of tit-for-tat measures shouldn't be dismissed. Trade skirmishes are casting a shadow even over regional trade, such as between China and South Korea, as Asia witnesses a resurgence of nationalism in economic policy-making. Sample the recent blacklisting of JPMorgan Chase & Co. by the Indonesian government over an unfavorable research report. 

If nothing else, this is just one of the many ways a U.S. border adjustment tax could cause the globalization cookie to crumble. Wall Street should put its lobbying might to work to dissuade the Trump administration from raising the cost of accessing U.S. consumers for Asian firms. Otherwise, global banks, too, might have to pay a price for those more expensive shoes and handbags.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at

To contact the editor responsible for this story:
Matthew Brooker at