Donald Trump was widely expected to launch a tariff war as soon as he returned to office. In the event, the first shots in his war on the globalised economy happened on quite a different front. In his flurry of orders and memos this week, Trump definitively withdrew already shaky US support for the global compromise on taxing the profits of multinational corporations, a reform painstakingly worked out over the past decade. He also threatened punitive retaliation on any country levying “extraterritorial” or “discriminatory” taxes on US multinationals.
The new administration’s challenge to the global deal is bad news all round. In the aftermath of the global financial crisis, it was clear to cash-strapped governments and their taxpayers that the old web of bilateral treaties designed to avoid double taxation increasingly facilitated double non-taxation for multinational companies. The ability to avoid tax by allocating profits in low-tax jurisdictions was not politically or financially sustainable.
This problem affected the US, too. Domestic rules making it easy to park accounting profits in tax havens reduced the US tax take and discouraged companies from investing or redistributing their funds at home. That is why, ironically, the first Trump administration helped drive reform forward. Much early political lifting was done by the then Treasury secretary Steven Mnuchin and his French counterpart.