The Trump Tax Reform, As Seen in the U.S. Balance of Payments Data (Council on Foreign Relations, 8 min read)
The Trump tax reform was considered to be the formula that would allow the US to claim back trillions of dollars of trapped profits and make America a more manufacturing-competitive landscape. But this article incisively debunks these claims. US firms have very little incentive to return large offshore profits at the reduced 21% tax rate when they can simply continue to pay an offshore rate of 10.5% (the global minimum). Distribution of US profits has actually increased in concentration in the seven low-tax jurisdictions since. Another key method of evaluating the effectiveness of these reforms is to analyse the balance of trade in sectors where firms outsource their manufacturing and import their goods into the US. It’s evident here as well that these policies were highly ineffective – US imports of pharmaceutical products, in particular, surged substantially in 2018, largely from these low-tax jurisdictions (Ireland, Singapore, and Switzerland).
Why does this matter? Much like President Bush’s tax reforms in 2004, Trump’s reforms have failed to bring an enduring return of US corporate profits back to the US. This suggests that these attempts at re-shoring or de-globalisation have so far failed.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)
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