Trump’s Tax Plan and the Dollar
US President-elect Donald Trump wants a "border-adjustment" tax as part of his corporate-tax reforms. But such measures are suitable only for countries that maintain a fixed exchange rate or are in a currency union; for countries with a floating exchange rate, currency appreciation will cancel out any competitiveness gains.
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CAMBRIDGE – Now that Donald Trump has been elected President of the United States and Republicans control both houses of Congress, corporate tax reform is coming to America. The package currently being discussed includes two important features: a cut in the tax rate, from 35% currently to 20% or even 15%; and a “border-adjustment” tax, which is typical of a value-added-tax (VAT) regime, but unusual for corporate taxes.