In 2017, U.S. President Donald Trump proposed a 20% import tax, also known as a “border adjustment tax.” The proposition created a lot of uncertainty, and while it has yet to come to fruition, many consumers wonder how an import tax will affect their wallets.
Any kind of import tax would likely increase prices for the average American consumer. But experts are still unsure of how much and for how long.
One thing they do know: most industries will be affected. This includes retail, food and manufacturing.
How quickly will prices rise? That depends on what is being imported. It’s possible that consumers could see an immediate rise in products like vegetables, televisions, shoes and clothing.
Most experts think that consumers would see a one-time inflation spike, but prices would adjust over time.
It’s also possible that other changes could come along with the tax that might affect how goods are imported.
The Union Customs Code changed the way goods are imported into EU countries. The changes on imports into Germany forced companies to establish a German EORI to act as a declarant. Previously, companies outside of Germany could import goods as long as they had a non-established VAT number and EORI.
Along with these changes, experts say that a tariff may also have unintended consequences. For example, a spike in inflation could prompt the Federal Reserve to raise interest rates at a quicker pace.
A report from Consumer Reports also pointed to the tariff on Chinese tires in 2009. Not only did the tariff raise prices on American consumers, but it cost companies nearly $1 million for each job saved, and three retail jobs were lost for every factory day. China also imposed a tariff on U.S. chicken, which cost the industry $1 billion in sales.
There are also experts who argue that people will hardly notice an import tax. Take, for example, the VAT in the United Arab Emirates (UAE). Consumers in the UAE have significant purchasing power, so a 3-5% VAT would likely not have a significant impact on consumers. A 10% or higher tax raise, on the other hand, would have a bigger impact.
Those purchasing big-ticket items will be impacted the most.
Back in the U.S., President Trump is doubling-down on his pledge to impose a reciprocal tax on imports. If implemented, consumers may not only face higher prices, but the action may also escalate tensions with important trading partners.
“What’s going to happen is either we’ll collect the same that they collect, or probably what happens is they’ll end up not charging a tax and we won’t have a tax, and that becomes free trade,” said Trump.
Although Trump is pushing for the tax, the White House says there is no such proposal for a reciprocal import tax in the works.
Still, economists point out that Trump has the authority to impose the tax without congressional action if he does so by increasing import tariffs. Much of the constitutional power over trade has been delegated to the president through various laws enacted over the years.