RPT-BREAKINGVIEWS-Taxing US-bound funding chomps the hands that feed

By Gabriel Rubin

WASHINGTON, June 9 (Reuters Breakingviews) - Does Donald Trump want overseas companies to manufacture products in the United States or not? Clashing policy measures make it hard to tell.

The U.S. president likes nothing more than a splashy announcement about a major investment. The White House has an entire website page devoted to such commitments, including $20 billion for shipbuilding and ports by France's CMA CGM and a $23 billion expansion plan from Swiss drugmaker Novartis.

A Republican budget proposal making its way through Congress threatens to shred some of those big checks and deter new ones. Section 899 of the 1,100-page legislation would impose an increasingly harsher tax, ultimately reaching 20%, on foreign ownership of U.S. assets by individuals, companies and governments from countries deemed to have imposed unfair taxes of their own.

It's a fatuous way to retaliate. The provision included in Trump’s signature bill represents the culmination of Republican efforts to shield U.S. businesses from a 15% global minimum tax, European digital services levies and other revenue-generating policies by the country’s trading partners. It would enable American multinational companies to seek out tax havens with impunity or punish companies from countries that try to resist. About 80% of all foreign direct investment comes from places the nonpartisan Tax Foundation says has policies that could run afoul of it.

An additional 20% tax would create an effective 50% rate for overseas investors on U.S. assets, antithetical to Trumponomics. U.S. affiliates of foreign multinationals employed 8.4 million workers in 2022, and manufacturing accounted for more than 40% of the nearly $6 trillion in investment from abroad.

There are further questions about whether Treasury notes count, too. Wall Street executives are pressuring the Senate to ensure the text at least excludes U.S. bond holdings, which would be cataclysmic for the debt market. Applying the extra tax to central bank or foreign private holdings would lower their effective yield by around 100 basis points, Deutsche Bank analysts estimate.

Even if T-bills are omitted, the damage would be significant. The Global Business Alliance, which represents Airbus, Novo Nordisk and dozens of other foreign companies, called the tax “punitive and discriminatory.” Dozens of their members are descending on Washington this week to lobby for changes. Walking away from the U.S. market has been an unthinkable notion, but this administration is doing its best to put it in the realm of the possible.

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CONTEXT NEWS

The U.S. House of Representatives passed a provision in the One Big Beautiful Bill Act that would authorize the imposition of a tax as high as 20% on foreign ownership of U.S. assets if the owner is based in a country deemed to have “discriminatory” tax policies.