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Trump’s Border Tax Looks Like A Margin Killer

President Trump can likely expect little resistance from the business world on tax reform, except for one sticking point, the proposed border adjustment tax, or BAT.

Retailers in particular are mounting a spirited assault on the controversial provision.

A 20 percent levy on imported products would affect virtually all product categories given the global economy, but few less so than the electronics and major appliance industries, whose components and products are largely manufactured and assembled offshore.

Although industry players are hesitant to make any pronouncements while legislative, political and financial processes play themselves out, their concerns are evident.

“It’s hard to judge the impact before we know what currencies will do to offset an import tax,” observed Dave Workman, president/CEO of ProSource. The real worry, he said, is that “vendors would feel compelled to compress pricing,” which “furthers the margin structure toward the mass market. And the market dictates how much you can sell something for.”

Steve Baker, VP and technology industry analyst for The NPD Group, echoed the fear of other retailers that “higher prices due to the tax will dampen consumer demand,” he said, “In general CE, as a low-margin, high-priced, almost exclusively import-driven category, would likely suffer disproportionately from a tax of that nature.”

LG Electronics is taking a proactive approach by building appliances in the U.S. Its first domestic production facility, a washer plant in Tennessee, was conceived six years ago, long before the tax proposal took form, in order to increase speed to market and provide greater marketplace flexibility.

But the move has proven even more propitious in light of the tariff talk, acknowledged LG Electronics USA president/CEO William Cho. “With this location we can adapt to a changing environment,” he told TWICE. “We will be watching what happens,.”

Others have been more outspoken. Marvin Ellison, chairman/CEO of JCPenney, said BAT would wallop the apparel and appliance chain’s customers and make it “virtually impossible” to turn a profit.

“Very simply, it adds a 20 percent cost to goods that are going to middle-and lower-income consumers,” he told CNBC, which would be “very devastating” to that population, as well as to his business.

“It takes our tax structure from roughly a 34 percent corporate tax to over 170 percent, so that gives you an idea of the financial impact to a company like JCPenney,” Ellison said. “And that’s very consistent with other companies like Best Buy, Target, Kroger, Walmart. … I mean, you name it, we’re all in the same precarious position because we don’t have manufacturing capacity that exists in the United States.”

The Retail Industry Leaders Association commented, “[We have] been working tirelessly with our members to educate lawmakers on the negative impacts a border adjustable tax will have on American consumers,” said public affairs senior executive VP Brian Dodge, and, together with 120 other trade groups, has launched Americans For Affordable Products, a national campaign to combat BAT.

The National Retail Federation is further pressuring legislators by taking the fight directly to their constituents. The group last month launched a TV, print and digital ad campaign to inform voters that BAT will likely increase the cost of basic necessities like food, gas, clothing and medication by $1,700 for the average family in the first year alone.

“American consumers are being asked to foot the bill for a new $1 trillion tax giveaway for multinational companies, and this campaign will make sure those paying for it know it,” said David French, NRF government relations senior VP. — Additional reporting by Lisa Johnston