6 Ways a Border Tax Could Affect Car Buyers

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Import Tax Could Fundamentally Change Car Buying

In an effort to bring manufacturing jobs back to America, the new administration and Republican-led congress are looking at several ideas that will financially punish companies that import foreign-made goods into the country while providing incentives to those who create goods in the U.S. for export.

President Donald Trump has talked of a tax on goods coming in from Mexico as a way of paying for his border wall, and that could increase the cost of the increasing number of vehicles that are made in Mexico, as well as any U.S.-made vehicles that use parts manufactured in Mexico.

Congressional Republicans, however, are considering a more far-reaching change to the tax code called a border adjustment tax. The multi-pronged proposal most commonly quoted would reduce the corporate income tax from 35 percent to 20 percent. Goods that are imported into the United States would then be taxed at 20 percent, while revenue from exported goods would not be subject to tax. In other words, a Ford Mustang destined for Asia would benefit Ford, but a Lexus LS built in Japan for a customer in Dallas would be subject to a 20 percent tax.

For consumers, the border adjustment tax could dramatically change the car-buying landscape in the short term, pricing many fuel-efficient, low production, and European luxury models out of reach, and potentially pushing some brands out of the U.S. auto market.

Essentially, such a change would produce an unknown but significant number of jobs, but the costs of creating those jobs would be borne by American consumers, both in the short and long term.

We’ve listed some of the effects on the following slides.

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