Wal-Mart shoppers aren’t the only ones who could suffer under a tax plan that President Donald Trump is warming up to -- U.S. investors who trade on the London Stock Exchange, the Deutsche Boerse and Euronext might also take a hit.
Stocks and bonds denominated in foreign currencies might lose as much as 15 percent of their value when their U.S. holders convert them into dollars -- one of the effects of a so-called border-adjusted tax, according to Paul Christopher, an economist at Wells Fargo & Co. That’s because economists expect that the dollar would strengthen under the tax proposal, which would replace the U.S. corporate income tax with a levy on U.S. companies’ domestic sales and imports, while exempting their exports from taxable income.
Retailers have railed against the proposal saying they’d suffer under the tax because they rely heavily on imported materials. Other industries that import goods, including automakers, oil refiners and restaurants, have also said the tax could lead to higher prices for consumers.
The tax proposal’s supporters, including House Speaker Paul Ryan and House Ways and Means Committee Chairman Kevin Brady, argue that macroeconomic factors would lead to a stronger dollar -- reducing the cost of imports -- and even out any effects on consumers over time.
Trump’s aides last week signaled that the president is leaning toward the border-adjustment plan -- which Press Secretary Sean Spicer mentioned as a way to help pay for a wall along the Mexican border. Mexico is the U.S.’s largest source of agricultural imports, including Haas avocados.
A senior White House official described the border-adjusted tax, which would apply to imports from all foreign countries, as the “most nationalist” way for the U.S. to tax its companies.
This week, a broad coalition of lobbyists for retailers including Wal-Mart Stores Inc., energy companies and the auto industry launched a lobbying counter-offensive against the proposal.
Less attention has been paid to how the border tax would affect Americans who held $9.4 trillion of foreign assets as of Dec. 31, 2015, according to estimates by the U.S. Treasury Department.
Revenue Generator
“It’s not really on people’s radar yet,” said Christopher, head global market strategist for Wells Fargo Investment Institute, the bank’s registered investment adviser, said in an interview. If border adjustment is included in a tax overhaul, “the international portion of a portfolio could come to lose 10 to 15 percent,” he said.