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Trump trade talk sends dollar lower


NewsHubA crucial part of Ryan and the House GOP’s plan is called the border adjustment tax. Trump says “it’s too complicated. ”
“Anytime I hear border adjustment, I don’t love it,” Trump told the Wall Street Journal in an interview published late Monday night. “Because usually it means we’re going to get adjusted into a bad deal. That’s what happens. ”
That criticism sent the U. S. dollar lower against many major currencies on Tuesday because it raised the possibility that Trump would use tariffs instead, a strategy that runs the risk of sparking a trade war. That scenario is Wall Street’s biggest fear with Trump.
The dollar fell 0.7% on the ICE Dollar Index, which tracks the greenback against the world’s major currencies like the euro, British pound, Canadian dollar and Japanese yen.
Related: Chinese president: No one wins from a trade war
The dollar even fell against the Mexican peso, which has taken a huge beating since Trump was elected because of his threats to tax goods that come from Mexico.
Trump also said the dollar was “too strong” which also pushed down the value of the greenback.
Some say a border adjustment tax (BAT) is the lesser of two evils compared to tariffs. China’s president has already warned against tariffs Tuesday.
“No one will emerge as a winner in a trade war,” President Xi Jingping said in Davos, Switzerland.
The BAT does not risk a trade war — if it works the way it’s supposed to.
A spokeswoman from Ryan’s office said that the speaker is in frequent communication with the president-elect and his team “about reforming our tax code to save American jobs and keep the promises we’ve made. Changing the way we tax imports and exports is a big part of that, and we’re very confident we’ll get it done. ”
Here’s how a BAT works:
-It gives tax breaks to companies that ship products overseas
-It takes away tax breaks from companies that currently buy lots of products from abroad
Related: Mexico warns Trump on tariffs: We’ll respond ‘immediately’
At first, the winners would be U. S. companies that export, and the losers would be American shoppers and companies like Walmart ( WMT ) that sell lots of goods from other countries.
Then comes the important part: backers of BAT bet that once it goes into effect, the U. S. dollar will very quickly rise in value.
They say the dollar will rise 20% to 25% because, among other factors, the reform would make U. S. exports more affordable for foreign buyers. That would increase demand for U. S. products, and higher demand would raise the value of the dollar.
A higher dollar also means that imported goods will be cheaper, so American consumers won’t have to pay more. It will even out.
So nobody really wins or loses in terms of jobs and prices. But companies would still have a tax incentive to produce in the U. S.
On the other hand, critics of a BAT don’t believe the dollar will go up enough, and they say Americans will get hurt with higher prices for clothes, TVs and computers, and no guarantee that more jobs are created.
So, one might understand why Trump says a BAT is “too complicated. ”
“I just want it nice and simple,” Trump told the Journal.
Related: Trump doubles down on border tax threat
For Trump, nice and simple means tariffs. Last week he reiterated his threat that companies that manufacture products in other countries and sell them in the United States would face a 35% “border tax. ”
Trump argues that a tariff would encourage companies to keep jobs in the United States or move them back here.
Trade experts say tariffs would only move the jobs to the next cheapest country. If tariffs go up against Mexico or China, then jobs would likely go to Vietnam or another Latin American country, they argue.
Tariffs usually force Americans to pay more for goods. President Obama slapped tariffs on Chinese tires in 2009, and prices for those tires went up 26%, one study found.
And lastly, other countries almost always retaliate when America slaps tariffs on them. Mexico’s economy minister warned last Friday Mexico would respond “immediately” if Trump hits Mexico with a tariff. That would be the beginning of a trade war.
“It’s very clear that we have to be prepared to immediately be able to neutralize the impact of a measure of that nature,” economy minister Ildefonso Guajardo said Friday on a Mexican news show.
–Charles Riley contributed reporting to this article

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