Exporters Vs. Importers: CEO Split Widens Over Border Tax Debate

A rift is deepening in the business community over how America should tax its imports and exports, prompting many CEOs to consider a trip to Washington to press their case to lawmakers.

The stakes are high, with big exporters such as Boeing potentially benefiting from a proposed border tax, and retailers such as Target warning of inflation impacts that could sap demand for their products and ultimately hurt the economy.

CEOs may not have much time to press their case, given Donald Trump’s announcement last Thursday that he would unveil his “phenomenal” tax plan in a few weeks’ time. That said, it could still take many months to hammer out the details of any changes in Congress.

House Republicans, including Speaker Paul Ryan, are pressing for a reduction in the corporate tax rate to 20% from 35%. To help pay for it, a 20% tax also would be imposed on imports. Revenue on exports, meanwhile, would be rendered tax deductible. Although Trump has labeled the plan “complicated”, it’s in the same spirit of his pledges to protect American jobs by slapping tariffs on goods made in Mexico and China.

Supporters of the plan argue a resultant strengthening of the dollar would neutralize the negative impact on importers, though many aren’t so sure. The Retail Industry Leaders Association, which represents the interests of CEOs from 120 companies and trade organizations, including Wal-Mart Stores, this month formed a national campaign to stop the tax, dubbed Americans for Affordable Products.

“The border adjustment tax is harmful, untested and would put American retail jobs at risk and force companies to pay as much as 20% more for family essentials,” the association said.

Now, a band of retailing CEOs, including Target’s Brian Cornell, Best Buy’s Hubert Joly, Gap’s Art Peck and AutoZone’s William Rhodes are heading to Washington to make a case for killing the proposal, Reuters reported last night, citing people familiar with the plan.

Their advocacy pits them against a group of major exporters, including Boeing, GE, Oracle and Pfizer that have formed a coalition of their own to support the tax, dubbed the American Made Coalition.

Leaders on both sides of the debate, including Wal-Mart’s Doug McMillon and former Boeing CEO Jim McNerney sit on the president’s 18-member economic advisory council.

The jury’s still out on which elements of Trump’s tax plans will get through Congress. Goldman Sachs chief economist Jan Hatzius recently gave the border tax just a 20% chance of occurring. If it doesn’t, he said, Republicans could afford only to cut the corporate tax rate to 25%.

A number of prominent market commentators, including BlackRock CEO Larry Fink, have warned in recent days that Trump’s tax plans may not come to fruition until at least next year as differences among Republicans are debated in Congress.