Sug­gested ‘border ad­just­ment’ tax is tossed to and fro in the US

The Star Early Edition - - TRUMP FOCUS - Reuters

AS WITH many in­dus­tries now fret­ting over the un­cer­tain fu­ture of US trade pol­icy, the oil busi­ness is siz­ing-up the po­ten­tial im­pact of the var­i­ous pro­tec­tion­ist mea­sures be­ing bandied about Wash­ing­ton – which have sent crude mar­kets into a tizzy.

The trade pro­posal with the most mo­men­tum may be the con­tro­ver­sial tax re­form, pushed by Repub­li­cans in Congress, that could slap a tax of up to 20 per­cent on all im­ports, in­clud­ing crude oil.

That would spark a rise in fuel costs across the coun­try that would hurt East and West Coast re­fin­ers more than those near the Gulf of Mex­ico.

It would also hit the pock­et­books of drivers and air­line pas­sen­gers, as re­fin­ers pass on the nearly $30 bil­lion (R403bn) that the tax could cost them each year on crude im­ports.

“The con­sumer is re­ally the one that suf­fers,” Cyn­thia Warner, ex­ec­u­tive vice-pres­i­dent for op­er­a­tions at re­finer Te­soro Cor­po­ra­tion, said ear­lier this month at a con­fer­ence in Hous­ton. Te­soro op­er­ates seven re­finer­ies: two in Cal­i­for­nia, two in North Dakota and one each in Utah, Alaska and Wash­ing­ton.

The “border ad­just­ment” tax could also re­draw trade maps for global flows of crude and re­fined prod­ucts. US crude pro­duc­ers would be the ob­vi­ous ben­e­fi­cia­ries as their over­seas ri­vals bear heavy taxes on im­ports, which are used of­ten by coastal re­fin­ers, es­pe­cially those with­out di­rect ac­cess to US pipe­lines.

Higher prices for do­mes­tic crude would make pump­ing from more US fields eco­nom­i­cally vi­able – en­cour­ag­ing higher out­put from the shale patch and giv­ing more mo­men­tum to a nascent re­cov­ery in the US shale in­dus­try af­ter a bru­tal in­ter­na­tional price war.

While that likely would not put a big dent in the 7.9 mil­lion bar­rels a day that the US im­ports, Gold­man Sachs es­ti­mates that US oil ex­plo­ration and pro­duc­tion firms would ben­e­fit to the tune of $20bn from higher do­mes­tic crude price and in­creased pro­duc­tion.

Crude mar­kets have been buf­feted by the pub­lic backand-forth be­tween Pres­i­dent Don­ald Trump and the Repub­li­can Party over var­i­ous tax pro­pos­als.

Con­tra­dic­tory sig­nals from Trump sent the oil mar­kets up and down in re­cent days. US crude fell to its big­gest dis­count to Brent crude in five months last week af­ter Trump ap­peared to pour cold wa­ter on the idea as “too com­plex”.

The next day, he said the tax would be dis­cussed – and US crude rose rel­a­tive to Brent.

Traders had spec­u­lated on the tax with an op­tions bet that the value of US crude would rise above the global Brent crude bench­mark.

Trump’s com­ments caused volatil­ity in trade of those op­tions, which in turn im­pacted bench­mark oil prices.

In­vest­ment bank Gold­man Sachs es­ti­mated in a re­port this week that the border tax pro­posal had a 20 per­cent chance of pass­ing.

But White House chief of staff Reince Priebus seemed to move the pres­i­dent closer to sup­port­ing the border ad­just­ment tax on Thurs­day, in the con­text of dis­cussing how to make Mex­ico pay for a se­cu­rity wall on the US border with Mex­ico, his sig­na­ture cam­paign prom­ise.

Asked if Trump favoured a border ad­just­ment tax, Priebus said such a tax would be “one way” of pay­ing for the border wall. Border taxes are part of a broader tax re­form plan that is be­ing pushed by Repub­li­can House Speaker Paul Ryan as an al­ter­na­tive to a va­ri­ety of pro­tec­tion­ist trade poli­cies dis­cussed in a more ad hoc way by Trump. – Reuters

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