For US businesses in Asia and Asian exporters to the US, the prospect of a border adjustment tax (BAT), promoted by President Donald Trump, is the cause of huge concern.

The president has threatened to introduce the additional levy on foreign-made goods sold in the US as a means of forcing companies to produce on US soil and has also floated it as the method of forcing Mexico to pay for his mooted border wall along the US-Mexico border.

A clearer view on what the policy entails and how the administration will implement it is expected before the end of February, but the threat has hung heavy over companies planning to invest in additional production facilities in Mexico, with many putting their investment decisions on hold, and some scrapping them altogether.

For firms operating in Asia, it is a cause of genuine anxiety. A large amount of goods are manufactured – or contain parts that are manufactured – in Asia.

The scheme, which has been commonly misconstrued as a tariff on imports, would add a tax to goods at the point of sale. In this respect, it is akin to a form of VAT, except the company is taxed on income. In other words, when the value-added to the good is not created on US soil, the income it generates is subject to an additional tax.

The move would disproportionately affect the export-centric economies of Asia, where many of the electronic goods and motor vehicles for the US market are made. Even if they’re made on US turf, most technological items will contain at least some parts manufactured in Asia.

Consider the fact that 80% of the semiconductor chips used in computers around the world are made by Intel in Vietnam, that the vast majority of iPhone parts are sourced from China (and many other locations around Asia), and that while 65% of the Honda Civic – the top-selling car in the US – is manufactured in the US, the company itself is Japanese and sources 20% of its parts from its home territory. In total, 34% of the car is made using imported parts.

For these companies, a value-added tax could be crippling, and would likely see a ratcheting-up in purchasing price, meaning the end-consumer is the biggest loser.

“It appears the proposal for a new tax code will be punitive to imported cars and content from any nation. We need to redefine our views on import ratios to include Mexico and Canada,” says Kurt Sanger, a Deutsche Bank analyst, in a recent note.

A further concern is held by US companies working in Asia. Any punitive fiscal measures introduced by the Trump administration would surely be retaliated against by those countries most affected – most likely China.

“I am heading up our corporate business in Asia, but we’re a US bank operating in Asia. For us operating in China, we could potentially be in a difficult situation – just like many leading US companies, they don’t want to be caught in the middle of a trade war. That’s the biggest fear, they don’t want to be a pawn caught in the middle of a trade war,” Tzu Ping Tan, head of fixed income, currency, commodities and corporate origination (FICC), at Bank of America Merrill Lynch in Singapore, tells GTR.

He adds: “US car companies have invested a lot in their joint ventures in China, to go after the Chinese market, and have done really well over there and China knows that and could find ways to make life difficult for them.”

Santitarn Sathirathai, head of emerging market economics, Asia, at Credit Suisse, speculates that the BAT could penalise four Asian countries – Vietnam, Taiwan, Korea, and Malaysia –most, and could lead to a 25% rise in import costs.

“In a scenario of no or limited US dollar adjustment, US import prices could rise as much as 25%, resulting in Asia exports declining 3 to 4% in aggregate, and shaving around 0.5% from the region’s GDP. The hit to GDP of these most exposed four economies would be around 0.5-0.9%, due to a likely decline in exports to the US.”

He adds: “These four economies are vulnerable not only because they have relatively larger export value-added to the US as a share of GDP, but also because their exports to the US are mainly durable goods. As such, their export product mix has higher price elasticity, meaning demand is more sensitive to changes in import prices. India and Indonesia, on the other hand, are better positioned, partly because their export products are less price elastic.”

In short, a BAT would not pay for a Trump’s border wall: the cost would be passed to the consumer. The impact on Asian exporters would be great, but US companies in Asia would suffer severe damage too.