Impact of US border tax may be less negative than feared, JP Morgan says
Contrary to what some observers were saying, the impact of the new US President´s mooted 'border adjustment tax' on international equities might not be as negative as feared, analysts at JP Morgan said.
Unless of course other countries retaliate, which might lead to "a slippery slope of trade wars", they said.
For starters, it was not at all certain that the new levy on goods inbound to the US would even be approved, Mislav Matejka said in a research note sent to clients.
Furthermore, the exact impact would depend on many 'moving parts', particularly including a proposed reduction in corporate tax rates, so both measures needed to be analysed in tandem.
Such a tax hike would also bve US dollar positive, which would offset some of the negative impact on European exporters, Matejka said.
After looking at 122 European stocks, the JP Morgan analysts found that the threshhold at which the overall tax turned positive from negative was at roughly 50% value-added being produced in the US, under the assumption of 40% gross margins.
To take note of, Matejka believed none of the tax implications had yet been discounted.
"We do not see the potential impact as necessarily all that negative. Clearly, there are many unknowns when assessing this issue, but the consensus assumption that the companies/countries with the largest revenue exposure to the US are those that stand to lose the most might be too simplistic and lead to overly negative conclusions.
"[...] Overall, we think the net impact on international equities might not be as negative as feared, but believe that the more meaningful problem could be any second round effect from the potential retaliation from other countries, which could lead to a slippery slope of trade wars."