Foreign Trade

Tax Plan's Hidden Impact: Narrower Trade Gap

from The Wall Street Journal,

GOP tax plan could lead companies to curb shifting of profits abroad—and could satisfy Trump’s protectionist instincts.

Besides tax reform, one of President Donald Trump’s most cherished goals is reducing the gaping U.S. trade deficit. In a little-appreciated way, the tax bill expected to pass Congress this week may do just that. This wouldn’t come by making businesses and workers more productive or changing other countries’ trade practices, but by curbing the incentive for multinational companies to artificially shift profits abroad. Independent research suggests this could reduce the trade deficit by half, or roughly $250 billion a year, and deliver a one-shot 1% or greater boost to annual gross domestic product. This would be an accounting effect rather than a change in actual business or worker income. (It would also be independent of any increased work or investment from lower tax rates.) Nonetheless, some analysts think the positive optics might curb some of Mr. Trump’s protectionist instincts, which are heavily driven by the trade deficit.

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