Ottawa Citizen

A border tax would hit Canada hard: study

C.D. Howe authors say GDP could drop

- MARIE-DANIELLE SMITH

A border adjustment tax being tossed around by United States Republican­s would be brutal for the Canadian economy, according to a forthcomin­g paper from the C.D. Howe Institute.

The study, to be released Tuesday, predicts the proposed tax package would be “highly distortion­ary and negative” and could cause Canada’s GDP to drop by almost a full percentage point.

Foreign Minister Chrystia Freeland told her U.S. counterpar­t, Rex Tillerson, on Wednesday that Canada would be “strongly opposed” to any new tariffs. But she said in a call with reporters that she would hold off on a position regarding the “border adjustment tax” because it was still being shaped and debated.

The potential tax package being floated to U.S. Congress would replace a 35-percent corporate income tax with a 20- to 25-per-cent “destinatio­n-based cash flow tax” that would tax imports while exempting American exports.

According to authors Dan Ciuriak and Jingliang Xiao, it’s a bad news story for Canada if the measures pass and incentives to buy Canadian go down, especially because the two countries have such intertwine­d supply chains. Ultimately, they believe bilateral trade would be reduced in both directions.

Canada’s real GDP could drop by almost a percentage point, and Canadian prices could go down by about two percentage points, the study says. The worst-hit would include the auto industry, the energy sector (specifical­ly fossil fuels), and machinery and equipment.

Prime Minister Justin Trudeau is to have his first meeting with President Donald Trump on Monday in Washington. The spectre of new tariffs isn’t the only issue Trudeau and Trump will have to talk about. Trump’s desire to renegotiat­e the North American Free Trade Agreement will loom heavy.

The two leaders can likely find common ground on their support for the Keystone XL pipeline project.

(PROPOSED TAX PACKAGE WOULD BE) HIGHLY DISTORTION­ARY AND NEGATIVE.

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