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So what is the difference between a tariff and a border adjustment? A tariff can raise the prices of specific imports from specific countries, singling out a country like Mexico, for example. The border adjustment, by contrast, is a broader measure that would reconfigure corporate taxation, for all goods from anywhere outside the U.S.
The border adjustment is expected to raise as much as $120 billion in revenue for the U.S. government, according to economist Martin Feldstein. But it would be a big shift, and some worry about how smoothly the theoretical model would play out. According to New York Fed president William Dudley, a border adjustment would not only be “pretty dramatic,” but would lead to likely lead to changes in “the value of the dollar, the price of imported goods in the U.S. and I’m not sure that would all happen very smoothly,” said Dudley after a speech at the National Retail Federation earlier this month.
The daily minimum wage will increase from $73.04 to $80.04 pesos (currently, approximately $3.90 USD), as of January 1, 2017
In the House Republican’s tax reform plan, the border adjustments are similar to a Value Added Tax (VAT). Both foreign and domestically produced products would be taxed, but exports—things made in America that are not sold here—would be exempt from tax. Higher taxes on imports paired with lower taxes on exports will theoretically cancel each other out, as demand increases for U.S. exports (they’ll be cheaper) and the U.S. will demand fewer foreign goods (since they’ll be more expensive). Economists say this will result in a shift in exchange rates that will the offset taxes: In theory, the dollar will strengthen as a result of increased demand for cheaper American-made products. Then, as a result of a stronger dollar, American-made products won’t be so cheap and foreign goods will become cheaper since a stronger dollar increases purchasing power—offsetting the import tax.
The border adjustment is also part of a plan that would reduce the corporate income-tax rate (something Trump has already promised American business leaders), since companies would be taxed where their income is earned rather than where products are made.