“The Trump administration has created modern protectionism”

Tribune. In many areas, the new style of the Trump administration has brought about changes whose effects will resonate long after the current president’s political retirement. Taxation is one of the most striking aspects of the balance sheet of the current mandate. In fact, since 2016, the United States has dusted off its tax law, leaving it out of the closed universe of specialists to make it a lever for geopolitics. Trump tax reform will go down in the history books as the shift to a new economic order. If it had been largely prepared by the Obama administration, it is not insignificant that it was his successor who made it succeed. Because this tax reform breaks with half a century of American doctrine, to enter fully into a new era, that of protectionism and isolationism.

Read also The winners and losers of Donald Trump’s tax reform

From 2016, long before Europe but after China, the United States was concerned about relocations, essential in their eyes for the prosperity of the middle class, and a factor of stability for their democracy. Since the Kennedy administration, successive American governments have subsidized the conquest of foreign market share by their companies through the use of taxation. Any American company that manages to minimize its tax outside the United States and that does not repatriate these profits is exempt from corporation tax (IS), unlike their counterparts which only operate in the United States. This tax exemption was a great incentive to invest outside the national territory to build what President Kennedy called “The American economic empire”. The strength of these subsidies lay in their compatibility with the rules of the GATT (the system of lowering post-war customs tariffs), then of the World Trade Organization (WTO), as economists in favor of free trade remained strangers to the obscurity of tax rules …

Invitation to relocate

At the beginning of the XXIe century, the era is no longer of economic conquest, but of job creation in the United States. Trump tax reform removes the tax advantage on exports. It goes even further by taxing American companies that have profitable subsidiaries abroad more than companies that operate in the domestic territory. Instead of paying 21% income tax, they end up paying an actual rate of 23% and sometimes more. The name of this rule, Gilti, which phonetically means “guilty” in English, is symbolic and the message is clear: invest in the United States, not abroad.

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