U.S Border Tax May Hurt More Than Mexico as Asia Exports at Risk

Vietnam, Malaysia, Taiwan and South Korea may be hurt the most

A cargo ship sits berthed as stacked containers stand among gantry cranes at Tanjong Pagar Container Terminal, operated by PSA International Pte, at the Port of Singapore in Singapore.

Photographer: SeongJoon Cho/Bloomberg

With the threat of U.S. border taxes becoming more real, Asia is bracing for a trade backlash. A new report from Credit Suisse Group AG shows Asian nations should be rightly worried. 

If the U.S. Congress passes a mooted border tax plan, Asian exports could fall 3 percent to 4 percent, reducing the growth rate in the region by 0.5 percentage point, Credit Suisse economists Santitarn Sathirathai and Michael Wan said in a report.

It's unclear yet whether the proposed tax by House Republicans will pass in its current shape. The risk is there though: President Donald Trump's administration on Thursday floated the idea of imposing a 20 percent tax on Mexican imports. 

The Philippines and China face the greatest direct risk from such a tax because they have an export mix that's heavily reliant on electronic and capital goods, which can be easily replaced by U.S.-based producers, according to Credit Suisse.

But if you look at countries that have a greater share of their exports going to the U.S., four stand out: Vietnam, Malaysia, Taiwan and South Korea.

Some U.S. companies, like spice firm McCormick & Co. say the idea of imposing new border taxes on imports could hurt their bottom line as they can’t control where ingredients or intermediate products they use come from.

American consumers also stand to lose from the tax, Credit Suisse said. This is because, all things equal and assuming the proposed corporate tax rate of 20 percent, U.S. importers would have to raise prices by 25 percent to keep their profit margins unchanged if the tax is implemented. That mark-up may be smaller if the dollar strengthens, the analysts said.

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