Economics: Muted Effect of GOP Tax Plan’s Border Tax
In recent weeks one of the aspects of the Trump presidency that has generated the most uncertainty in Mexico is the way in which it has posed restricting imports from other countries and promoting US domestic production. Of particular concern is the Republican Party’s fiscal reform proposal, which is generally supported by President Donald Trump. One aspect of that package that has generated a lot of noise is the inclusion of a Border Adjustment Tax (BAT) that is supposed to de-incentivize imports and subsidize exports.
However, its effects on the Mexican economy may be blunted by two significant aspects: a further depreciation of the peso relative to the dollar would cushion the impact on the country’s trade while the effect of the peso’s depreciation, and the type of trade links that have long been established between Mexico and the US, which in many cases constitute value chains, would make investment movement difficult in the short-to-medium term.
In this week’s Outlook section we offer a detailed analysis of the effects a U.S. border adjustment tax would have on Mexico’s trade and economic activity.
Economic news last week included yet another installment in the past year’s history of upbeat labor market data, including a low rate of unemployment for December. The jobless rate dropped to 3.68% of the economically active population (EAP), the lowest level for a final month of the year since 2007, when joblessness was reported at 3.52%.
December also produced a historically low rate of informality, with 56.63% of the employed population working in conditions of informality, the lowest level reported since the authorities began publishing that indicator, in January 2005.
On a related note, data on manufacturing employment for November proved to be positive. The report showed that the number of people working in manufacturing grew at a 12-month rate of 2.9%, surpassing the 2.5% average for the first eleven months of 2016.
The increased hiring at manufacturing establishments coincided with the improvement seen during the same period in factory output, which grew 2.1% in November of 2016 in contrast to the 1.3% increase reported for the same month of 2015. Growth in hiring tended to be positive in most branches of manufacturing.
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