Bank of America Merrill Lynch said the enactment of a prospective U.S. border adjustment tax could lash U.S. natural gas prices if Mexico retaliates.
A similar border tax scheme, if implemented by Mexico, could spark “a wider trade war,” the investment bank said in a research note on Friday afternoon. “It could severely hurt U.S. natural gas exports and drive down prices at the Henry Hub.”
The Henry Hub, which is located in Louisiana, sets the benchmark price for U.S. natural gas trading.
In Washington, Republican legislators’ proposals include a border adjustment tax, which intends to boost U.S. manufacturing by taxing imports while exempting U.S. business export revenues from corporate taxation.
Last week major U.S. exporters threw their support behind the border tax, but President Donald Trump has sent mixed signals and some U.S. Senate Republicans question whether it would pass muster under international trade rules.
The United States currently sends 5 percent of its annual gas production via pipelines to Mexico, and the country is the biggest buyer of U.S. liquefied natural gas, according to the bank.
“Should a border adjustment tax get enacted as part of a larger corporate tax reform, international crude oil benchmarks could suffer while West Texas Intermediate (WTI) prices may benefit on a relative basis,” the bank added.
Goldman Sachs had earlier noted that U.S. tax reforms could see a 25 percent jump in U.S. crude futures prices in comparison with the global benchmark, triggering large-scale domestic production.
(Reporting by Apeksha Nair in Bengaluru)