One of the major areas of concern for Canada in the bilateral trade and
economic relationship might not be addressed formally in NAFTA or trade
relations. The proposed border adjustment tax would impose a tax on
imports into the United States. For a Canadian economy that sends more
than three-quarters of its merchandise exports to the U.S., the
potential impact of a border adjustment tax is staggering.
The border adjustment tax was outlined by the Congressional Republican
leadership in 2016 in its A Better Way document—a blueprint of
the Republicans’ legislative priorities. Such a measure would be one
component of the Republicans’ transformation of the tax system for
individuals and businesses.11Tax Reform Task Force, A
Better Way . Although a border adjustment tax would appear to help
the Trump administration meet its goal of curtailing imports and
encouraging exports, it is not at all clear that the measure has much in
the way of political support. One reason for the lack of support is that
it would significantly hurt the competitiveness of U.S. firms that rely
extensively on imports and would lead to higher prices for U.S.
consumers.22Hufbauer and Lu, Border Tax Adjustments:
Assessing Risks and Rewards ; Ciuriak and Xiao, Aftershocks:
Quantifying the Economic Impacts of a Us Border Adjustment Tax . In
addition, the implementation of a border adjustment tax would
undoubtedly prompt challenges under the World Trade Organization
rules.33Hufbauer and Lu, Border Tax Adjustments .
Although unlikely to be adopted, a border adjustment tax would have a
significant impact on Canadian industries that export heavily to the
U.S., including oil and gas producers and auto or auto-parts
manufacturers. \cite{Dattu_2014} . The Toronto-based C.D. Howe Institute estimated that if the
U.S. implemented a border adjustment tax, Canadian real GDP growth could
be reduced by as much as a full percentage point.55Ciuriak and
Xiao, Aftershocks: Quantifying the Economic Impacts