What are the Implications of Trump’s new Border Tax

In his Monday night speech for this year’s Kanee Lecture of the Jewish Heritage Centre of Western Canada, Gary Doer, a former Canadian premier spoke about the implications of Trump’s four years of the presidency to Canada. Doer feels anxious especially with the Canadian goods’ border tax and Trump’s redirecting perspective towards the North American Free Trade Agreement. Nevertheless, Doer believes that keeping a good working relationship with the new administration is still a rational choice.

Trump’s adjustment on the border tax is expected to get rid of income taxes from products that are sold outside the United States and imposing a 20 percent surcharge on imports. According to the proponents of the border tax, these adjustments will trigger more companies to manufacture their products in the United States and is believed to increase employment. The president is trying to encourage large and high-profile companies to stay in the U.S. with new capital investment while he tries to bring back jobs as well as foreign cash reserves using his new import taxes.  Finally, he wants to terminate the outsourcing of work to service sectors owned by foreign companies and providers as part of his ‘America First’ agenda. Those who are employed in outsourcing services will be significantly affected.

Consequently, several companies in Canada will be affected by the new border tax when it comes to their operations and imports. Let’s take Encana for example. Encana Corporation will keep on investing in Canada despite the rising of border tax barriers imposed to energy exports from Canada to the United States. Encana which is based in Calgary, is a company that works on exploration and production activities and focuses on four core petroleum-producing areas on Canada’s northern B.C.-Alberta border and in the southern part of the United States

Now, the problem rises as the border tax increase the price of oil in the United States since condensate is imported from the US. At the same time, this would increase the condensate’s price. Condensate is an essential product use by oil and producers in diluting heavy and thick bitumen and makes it flow through a pipeline. Most of the times, the condensate’s prices are almost the same with U.S. crude oil prices. Meanwhile, Encana has planned to increase its liquids production in Montney by 5 times to 70,000 barrels daily for the next two years.  In case a border tax would result in price hike in the United States, the Canadian dollar’s value would probably be undermined reducing the Canadian dollar costs of the company. Essentially, this will result to higher operations and import costs for the company and affects its ability to sustain its workforce.