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Analyst Sees Odds Of U.S. Border Tax Passage Increasing To 75%

Analyst Sees Odds Of U.S. Border Tax Passage Increasing To 75%

The potential border adjustment tax is the hot topic,and even the slightest development in this regard is closely monitored, as it is believed to cause broad implications to the U.S. economy.

According to President Donald Trump’s press secretary, Sean Spicer, Trump is considering a 20 percent border adjustment tax on Mexican imports. Trump is also reportedly considering a 45 percent tariff on imported Chinese goods as well. Trump has also threatened German automakers with a 35 percent tariff on imported automobiles.

While none of these border taxes have officially been implemented, U.S. companies that rely heavily on imported goods are certainly concerned as the costs will skyrocket. Republicans argue that higher costs may be offset by strong U.S. dollar as the economies of U.S. trade partners suffer the consequences of the border taxes.

In this scenario, Height Securities has increased the odds of Border Tax Adjustment (BTA) passage to 75 percent from 60 percent previously.

Border Tax Adjustment Probability

“[W]e believe there will ultimately be at least 21 votes in the Ways and Means Committee in favor of border adjustment among the committee’s 39 members (23 of whom are Republican). If the committee meets that threshold, we expect there will be more than the required 218 votes in favor on the House floor,” analyst Henrietta Treyz wrote in a note.

The analyst said odds remain 30 percent that this bill can pass the U.S. Senate.

Treyz, who believes the potential BTA bill must pass the House by August, says if it is delayed until October, “the view right now is that it will wither on the vine.”

“We would look to the May/June timeframe as the most likely at this time,” Treyz continued.

That said, there is still time for the BTA idea to gain traction as lobbying is going on aggressively despite many corporations are opposing the BTA than supporting it at present.

The Case Of Chipotle

Chipotle Mexican Grill, Inc. (NYSE: CMG) is one of the companies expected to be impacted if the BTA comes in to effect. The company’s costs may increase as about 93 percent of avocados and 71 percent of tomatoes sold in the U.S. come from Mexico.

Related Link: Chipotle On Trump's Border Tax: Not Worried 'Until And Unless This Comes To Pass'

But, Chipotle isn’t ready to panic yet.

"If any events impact our food costs in material ways, we’ll make that information available in a timely fashion, but we’re not going to speculate about what any of these events might mean. Until and unless this comes to pass, it's purely a speculative matter," a Chipotle spokesperson told Benzinga.

Other Companies' Perspective

Also, Benzinga reached out to Gildan Activewear Inc (USA) (NYSE: GIL) for its comments on BTA. Sophie Argiriou, the company's vice president, investor communications, said Gildan won't be at any particular competitive disadvantage versus its peers as 97 percent of all apparel sold inside the United States is manufactured and sourced outside of the country.

Related Link: Gildan Activewear Responds To Prospect Of Border Tax

Among the automakers, Jefferies' Philippe Houchois believes Ford Motor Company (NYSE: F) has the lowest risk among U.S. exposed OEMs with 80 percent of U.S. sales volume sourced domestically and U.S. exports/imports balancing out in value.

Meanwhile, Treyz expects the White House to release its “phenomenal tax plan” in tandem with Trump’s February 28 speech to a joint session of Congress.

Possible Elements Of Trump's Tax Plan

Treyz expects the Trump tax plan to include the following:

    1. “Reduced individual tax rates (33 percent top line).”
    2. “Reduced corporate tax rate (15–20 percent).”
    3. “A 10 percent deemed tax on accrued foreign derived earnings.”
    4. “A move to a territorial tax system.”
    5. “Expansion of the child tax credit.”
    6. “Expansion of the EITC.”
    7. “Reference to BTA but not wholesale endorsement.”

Image Credit: By U.S. Customs and Border Protection [Public domain], via Wikimedia Commons


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