News / Economic Divide

US tax plan: a gift to Germany, China, and Japan (part 2)

Friday, 19 January 2018 1:09 PM [ Last Update: Friday, 19 January 2018 1:09 PM ]

US tax plan part 2: a gift to Germany, China, and Japan.

Early December, 2017. The US President Donald Trump hails his tax cuts plan as the largest in the history of his country.

Trump’s tax cuts, however, could be less than ‘tremendous’ for its national debt. The new purchasing power - as a result of the tax cuts - leads to rising demand for imports. In the most likely scenario, it would result in a decline of a trade surplus, or an increase in trade deficits.

What about the relationship between the tax cuts and US economy's external sector?

It is estimated the proposed tax plan will leave the US economy US $1 trillion less revenue over the next decade.

A growth in America's domestic demand will benefit the surplus countries such as China, Germany, and Japan. Some say that the tax plan is a multibillion-dollar gift to these countries, following rising sales orders from their American customers.

In the first nine months of last year, these three countries were running a combined surplus of $372 billion on their US trades. That is about 2/3 of America's total trade deficit.

China is responsible for 70 percent of the total US deficit in goods. The number has been hovering around $340 billion.

Washington's plan to give Corporate America a big tax break could backfire and create a fat tax on consumers. That's because the key way designed to pay for the cut depends on the import or border-adjusted tax. The proposal would tax all imports into the US at the rate of 20 percent. Critics say it could create a jump in prices for everything from fuel to TVs and blue jeans.

Cutting the corporate tax rates mostly benefits those at the top, meaning that that workers would only receive a quarter or less of the benefits from tax cuts, and among those workers, it’s likely the higher earners that would benefit.

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