OTTAWA — A new report says a proposed U.S. border-adjustment tax that has stirred up fears in Corporate Canada would inflict considerable damage on both economies.
The analysis by the C.D. Howe Institute think tank estimates the U.S. policy change would shave nearly a full percentage point from Canada’s economic growth.
The study’s authors say the plan would reduce bilateral trade in both directions and predict it would cut nearly 1.3 percentage points from U.S. economic growth.
U.S. House Republicans are pushing for a suite of tax changes, including imposing a 20 per cent tax on imports, by preventing U.S. companies from deducting import costs from their taxable income to encourage investment and manufacturing in the United States.
The border adjustment tax would likely cause U.S. companies to switch to domestic suppliers rather than sourcing items from Canada, researchers at the C.D. Howe Institute said.
The auto, fossil fuel and machinery and equipment sectors would suffer the most as Canada’s exports are heavily weighted toward supplying those sectors, the report said.
The report’s release comes a day after Prime Minister Justin Trudeau met President Donald Trump and top House lawmaker Paul Ryan, who has promoted the border-tax measure.
It’s unclear whether Trudeau was able to get some clarity from Ryan on the future of the border tax, which has Canadian firms deeply concerned.
When asked whether Trudeau learned more about the border-tax proposal, a spokeswoman in his office pointed to a statement that only said the prime minister discussed trade during his meeting with Ryan.
With files from Reuters