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Experts: US Tax Reform and Trade Policy Will Negatively Impact World Economy

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US President Donald Trump’s economic policy will have a negative impact on the rest of the world, according to 913 economists across 120 countries surveyed by the ifo Institute on US tariffs and tax cuts. 78 percent of surveyed participants said that US tariffs would have a negative influence on their country. A clear majority of 66 percent also reported that this trade policy would also have a negative effect on the USA itself. Survey participants were divided over the impact of US corporate tax cuts: 49 percent expects them to negatively impact their own country, but a majority of 65 percent expects the tax cuts to positively affect the USA. Only 22 percent expects the reforms to negatively impact the USA. According to

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US President Donald Trump’s economic policy will have a negative impact on the rest of the world, according to 913 economists across 120 countries surveyed by the ifo Institute on US tariffs and tax cuts. 78 percent of surveyed participants said that US tariffs would have a negative influence on their country. A clear majority of 66 percent also reported that this trade policy would also have a negative effect on the USA itself. Survey participants were divided over the impact of US corporate tax cuts: 49 percent expects them to negatively impact their own country, but a majority of 65 percent expects the tax cuts to positively affect the USA. Only 22 percent expects the reforms to negatively impact the USA.

According to experts, emerging economies in Asia, developed countries outside the EU and the USA itself stand to be the biggest losers from US tariffs. The economic experts surveyed expect the new tariffs to have less of an impact on the EU. They recommend expanding trade cooperation with other countries as the optimal response strategy to US tariffs (68 percent). However, some experts also believe that the best option would be for governments not to react at all (21 percent). Very few experts favour trade restrictions on the USA (2.2 percent).

As far as US corporate tax cuts are concerned, experts in countries with close economic links to the USA due to large US direct investment or geographical proximity, for example, tend to be more concerned about their negative impact. Experts from the EU15 member states, in other developed economies and in emerging Asian economies most frequently fear losses from the US tax reform. A third of experts worldwide assume that respective levels of domestic investment will fall. Many experts, especially in developed countries, where around 30 percent are of this opinion, also expect profits to be shifted to other countries. The responses depended on the respective tax rates: expectations were more negative in countries with effective marginal tax rates that are now higher than those of the USA. A majority of experts expects higher investments in the USA, higher profit transfers to the USA, the shifting of ownership rights, the relocation of company headquarters and the repatriation of offshore profits to the USA.

A clear majority of 66 percent of the experts surveyed supports counter measures. The simplification of administrative measures is a particularly popular measure. Retaliatory measures like creating incentives to retain intellectual property and lowering domestic corporate tax rates were supported by 43 percent and 30 percent of experts respectively.

54 percent of experts expect global tax competition to increase in the years ahead. 25 percent expect no change in tax competition and 10 percent even expect it to weaken. In Latin America and Asia survey participants see the USA as the main driver behind tax competition in their own country. Western EU member states, by contrast, are considered the main drivers of competition in the EU and other industrialised companies. Countries in Africa, the CIS states and Europe’s emerging countries cited foreign tax havens as the main driver.

Clemens Fuest
Clemens Fuest took over from Hans Werner Sinn as chairman of the IFO Institute in April 2016. He is professor at the Faculty of Economics of the University of Munich.

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