President-elect Donald Trump is threatening to impose heavy taxes on U.S. companies that move jobs overseas and still try to sell their products to Americans.
But the plan could drive up prices for U.S. businesses and consumers and risk setting off a trade war — if it's legal to begin with.
In a series of early-morning tweets Sunday, Trump vowed a 35 percent tax on products sold inside the U.S. by any business that fired American workers and built a new factory or plant in another country.
Trump campaigned on a vow to help American workers but also to reduce taxes and regulations on businesses.
Trump tweets "there will be a tax on our soon to be strong border of 35 percent for these companies wanting to sell their product, cars, A.C. units, etc., back across the border."
He says companies should be "forewarned prior to making a very expensive mistake."
Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, says Trump would face a potent legal challenge if he tried to impose taxes, known as tariffs, on specific companies without congressional approval.
Hufbauer also doubts that Trump could identify a group of companies —those that move jobs overseas, then ship goods back into America — for special tariffs. "I'm skeptical," he says, predicting that courts would block such a move.
University of Michigan economist Justin Wolfers saw another problem with Trump's plan: His proposed tariffs would only hit U.S. companies that build plants overseas. They wouldn't apply to foreign firms that ship goods to the U.S. "Tariffs are one thing," Wolfers tweeted. "Tariffs that attack only on U.S. firms are another altogether."
Trump made the comments three days after he announced that appliance maker Carrier had agreed to reverse its decision to ship 800 jobs from an Indiana factory to Mexico.
During the presidential campaign, he repeatedly threatened to impose tariffs — 35 percent on Mexican imports, 45 percent on Chinese. Tariffs are meant to give homegrown companies a price edge by making their foreign competitors' products more expensive — and to punish foreign countries for unfair trade practices.
Since Trump's election, his team has described tariffs as a potential tool to be used to pry concessions from America's trading partners. "Tariffs are part of the negotiation," Wilbur Ross, an investment banker slated to become Trump's Commerce secretary, told CNBC last week.
Tariffs could prove costly. They are imposed at the border, and importers would likely try to pass along as much of the cost as possible to their customers.
A 45 percent tariff on Chinese-made goods could drive up U.S. retail prices on those goods by an average of about 10 percent, Capital Economics has calculated. Consumers would probably have to pay up because there are few alternatives to Chinese-made for many products. China, for instance, produces about 70 percent of the world's laptops and cellphones.
Taxing foreign goods could also start a trade war. The Global Times, a Chinese newspaper, has already warned that China could retaliate by limiting sales of U.S. cars and iPhones and by ordering aircraft from Europe's Airbus instead of America's Boeing.
In 2009, the Obama administration taxed Chinese tires to protect American tire makers from a surge in imports. Beijing retaliated with a tax of up to 105 percent on U.S. chicken parts.
Researchers at the Peterson Institute found that the tire tariffs probably saved 1,200 jobs in the U.S. tire industry. But higher tire prices cost American consumers an extra $1.1 billion — more than $900,000 for every job saved.