Will Border Adjustments Cause Exchange Rates to Adjust? Expert Says No.

As discussed in our post on Border Adjustments (available here), some have argued that border adjustments would not actually hurt net importers and benefit net exporters, because of offsetting currency adjustments. In a recent article (available here), Kenneth Rogoff, a former chief economist of the IMF and a professor of economics and public policy at Harvard University, argued that currencies might not adjust as fully or as quickly as many predict they will. April 18, 2017
Rogoff highlights that assumptions built into the analysis that currencies will adjust are not totally sound—for example, that people will not game the new border adjustments regime (see recent article by David Hariton) and that foreign governments will exercise restraint in retaliating against the new tax regime. Also, import contracts priced in U.S. dollars would need to expire or mature before importers could realize the benefit of a currency adjustment. Rogoff poses that if the value of the dollar does not rise as much or as quickly as it “should” there might be negative effects in the United States.