There has been much debate about the proposed border tax adjustment, in which U.S. firms would pay a 20 percent tax on all imported inputs and be exempt from paying taxes on export revenue. The view among many economists, including proponents of the plan, is that the U.S. dollar would appreciate by the full amount of the tax and thus completely offset any relative price effects. In this post, we consider the implications of an alternative scenario where the U.S. dollar only appreciates part of the way. This could happen, for example, as a result of the uncertainty surrounding the policy response from other countries. ... (full story)