Navigating America’s Economic-Policy Shocks
The changes to tax and trade policies under consideration in the US amount to a perfect storm of uncertainty that emerging-market countries must somehow navigate. Inadequate preparation will only aggravate the damage.
NEW YORK – With a series of tax and trade moves being considered in the United States this year, emerging-market economies are likely to face devaluation pressure and volatility.
Three sources of US-fueled economic uncertainty, in particular, will rattle emerging markets in 2017.
The first is a border adjustment tax that would give tax breaks to US exporters, but impose a levy – or, equivalently, disallow deductions – on imports to the US. Both President Donald Trump and the Republican-controlled US Congress have said they favor the scheme, which has a fair chance of being enacted. Such a tax, or even the anticipation of its adoption, could drive up the US dollar’s exchange rate (which, ironically, would offset, at least partly, the improvement in the US trade imbalance for which the Trump administration may be hoping).
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