Chad faces US tariff problems

07 March 2017, Week 09, Issue 679

Around 11% of Chad’s GDP stems from trade with the US, said Wells Fargo in a note on March 1 on the potential Border Adjustment Tax (BAT). Under the BAT plan, goods imported into the US would be taxed at 20%, while exports would not be taxed. 

The largest impact of the new tax plan would, however, be felt by the US’ immediate neighbours, Mexico and Canada, whose GDPs are 27% and 20% reliant on their NAFTA partner. “Many countries that are generally not considered essential trading partners from the perspective of the United States, such as Chad, are themselves heavily dependent on the United States as an export market,” Wells Fargo continued. 

Oil accounts for 19% of Chad’s GDP. Production in 2015 was 144,000 bpd, with 72,000 bpd going to the US. Chad’s crude sells at a discount to WTI, at around US$44 per barrel in 2015. 

According to the International Monetary Fund (IMF) in mid-2016, Chad’s oil revenues fell by 80% between 2013 and 2015, based on lower oil prices and repayments on sales advances. Furthermore, local cross-border traffic has suffered as a result of Boko Haram. 

The impact of a BAT would provide a boon for domestic US oil producers, while penalising US refiners. The impact is likely to borne mostly by drivers, who have long benefited from cheap gasoline. Because of low taxes on gasoline, prices are extremely responsive to fluctuations in the price of crude. It seems unlikely that the new Republican government would opt to impose such a tariff as it would face widespread political opposition. It cannot, though, be discounted. 

If imports of Chadian volumes become disadvantaged, it will have to seek other markets. Doba Blend is heavy, with high acidity, requiring sophisticated refining facilities. The most likely market would be in Asia, either in China or India, which have invested in additional processing plants in recent years.