Five European Nations Issue Warning To America On Tax Reform

Tuesday, December 12, 2017
By Paul Martin

by Tyler Durden
Dec 12, 2017

First it was the Chinese, now it’s the Europeans, as the rest of the world is suddenly very unhappy with the prospect of US tax reform (or maybe it is an unexpectedly strong US economy). As we discussed yesterday, with the historic Trump tax reforms on the verge of passage and the Fed’s dot plot signalling another 7-8 rate hikes (soon to be revised much lower), China is nervous that the capital outflows, which it thought it had bottled up, might be about to return. China is preparing a contingency plan which includes “higher interest rates, tighter capital controls and more-frequent currency intervention to keep money at home and support the yuan”.

Amusingly, the Wall Street Journal quoted a Chinese official who described Washington’s tax plan as a “gray rhino”. The latter is a combination of an “elephant in the room” and a “black swan”, i.e. a high probability threat which people should see coming, but don’t. The focal point of China’s fears is the Yuan, which the authorities have spent so much time and effort stabilising during the last two years. Speaking to the WSJ, the Chinese official sounded a warning: “We’ll likely have some tough battles in the first quarter.”

Switching to Europe and five European finance ministers have sent a letter criticising the US for undermining the “rules of the game” and international trade. Notwithstanding Brexit, the signatories included the UK Chancellor, Philip Hammond, as well as his counterparts in Germany, France, Italy and Spain. Essentially, the European nations are warning the US that it risks starting a trade dispute.

According to the Financial Times, “the finance ministers from Europe’s five largest economies have warned the Trump administration that Republican tax cut plans would flout international agreements and undermine trade, threatening to turn a Washington policy battle into a transatlantic row.”

In a letter to the White House and US Treasury department, the ministers – including Philip Hammond of the UK, Peter Altmaier of Germany and Bruno Le Maire of France – raised the possibility of retaliating if the legislation becomes law. The letter highlights concerns in Europe that the Trump administration will use tax reform as a route to promote “America first” trade discrimination, escalating tensions that have already risen in other policy areas like the environment and Middle East peace.

The ministers insisted they were not seeking to intervene in a domestic tax debate, which they called one of “the essential pillars of a state’s sovereignty”. Nevertheless, the letter warned Steven Mnuchin, US Treasury secretary, that Washington should not start a trade dispute under the guise of anti-avoidance measures in taxation. “We have strong concerns if (US action to protect its tax base) is done via measures that are not targeted on abusive arrangements as this would impact on genuine business activities,” they wrote.

The Rest…HERE

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