Will Donald Trump’s Tax Plan Lead to Trade War?
The Senate passed President Donald Trump’s controversial tax reform plan on December 2 with a 51-49 vote. The president said he hopes to sign the final bill into law by the end of this month. This plan has Europe worried, as Spiegel Online reported on December 8. The tax plan marks the biggest change to U.S. tax policy in decades—and it could lead to an international trade war.
As Spiegel Online reported, the reforms in the new tax plan will change the U.S. from a high-tax country to a low-tax country, which makes America much more desirable for businesses. The plan will reduce federal corporate taxes from 35 to 20 percent. Under the current tax plan, America has one of the highest corporate tax rates in the world. Most businesses in the U.S. have to pay over 40 percent of their profits in taxes. The tax reforms will reduce this significantly, which is great news for American businesses.
To make up the subsequent revenue shortfall, however, the plan also includes measures to tax imports more heavily. This is why Europe eyes the bill with suspicion. The tax bill embodies President Trump’s protectionist “America first” policy. Germany, in particular, is not happy about where that leaves Europe.
Germany and other European nations see the tax bill as an attempt to penalize imports and discourage trade from other countries. In a lot of ways, they are right. Under the current tax system, it is cheaper for a manufacturer to outsource production than to pay the exorbitant taxes for having its facilities in the U.S. This is why American industry has gradually shifted overseas in the last few decades. That trend is not good for America because it means that a lot of the profits have also moved overseas. That is why President Trump wants to reform the tax system. As Spiegel Online reported, the planned reforms could be an effective way to make America a desirable place to do business once again. They go beyond creating a level playing field, however. Certain provisions will penalize foreign countries.
A protectionist America could lead to a protectionist Europe. These moves may be good for America in principle, but they anger nations that America relies heavily on for investment and trade. Spiegel Online wrote:
The rest of the world will be left holding the tab. On the plus side, to be sure, the plan refrains from introducing a blanket border-adjustment tax. Such a misguided measure would have slapped a special tax of 20 percent on all imports. Now it will only be applied to subsidiaries of foreign companies and their parent companies. From now on, for example, the bmw factory in Spartanburg, South Carolina, won’t be able to deduct parts deliveries from company headquarters in Munich. This will accomplish two goals: For one thing, more money will flow into the state coffers, thus mitigating loss of revenue from the tax cuts. For another, foreign suppliers will become less attractive to American companies. As a result, companies like bmw and Siemens with operations in the U.S., it is hoped, will end up ordering parts and supplies from American companies.
For America, this is great. But Europe is alarmed—and understandably so. America has a lot to gain from the reforms, but Europe has a lot to lose.
Europe is ready to fight back. Germany, France, Britain, Spain and Italy have written a complaint to U.S. Treasury Secretary Steven Mnuchin, warning him that the tax reforms may violate international treaties, including the German-American Treaty of Friendship. That treaty prevents Germany and America from “discriminating” against each other’s companies. America is also a member of the World Trade Organization. The tax reforms may violate its commitments and agreements as a member of that group.
Germany is set to lose the most from these reforms. As theTrumpet.com managing editor Brad Macdonald wrote in the April 2017 Trumpet, Germany has “the fourth-largest economy in the world, is the world’s third-biggest exporter, and is the engine that drives Europe economically.” America is also the leading importer of German goods. Almost half of Germany’s gross domestic product comes from its exports. Higher taxes on imports in the U.S. will discourage Americans from buying German products, and the German economy will take a sizable hit. Germany literally cannot afford for this tax plan to go through. If it does, you can be sure that Germany will take action.
In a lot of ways, these reforms are an open door for Germany. “[A]ll the uncertainty and tension is giving Berlin an opportunity to develop new trade relationships, to act more aggressively, especially toward the U.S., and to assume a greater leadership in global trade and commerce,” Mr. Macdonald wrote. If America leaves its traditional global partnerships and trade organizations, it will leave a vacuum behind. Germany and the EU are more than ready to step in and fill the void.
Spiegel Online, a German news source, stated: “The American tax reform is nothing less than the beginning of a new tax race. … Trump’s unilateral actions could prompt a new push towards European unity” (emphasis added). If America starts looking out more for itself than for the international good, Europe will fight back by doing the same. Since it is clearly “America first” for President Trump, it will become “Europe first” for the EU.
Even if the tax bill didn’t go through, the reforms still indicate to Europe that it might be a good idea to seek another trading partner. That’s exactly what Germany is doing.
With America pulling away from globalization, Germany is looking to China and other Asian nations instead. Germany and China are getting more and more friendly, and Bible prophecy indicates that this trend will continue. Ezekiel 27 prophesies a temporary Europe-Asia economic alliance that will arise in the end time. This alliance will not include America and Britain—in fact, it will be against these nations.
Trumpet editor in chief Gerald Flurry has shown that, as prophesied in Ezekiel 5, this Eurasian “mart of nations” will actually “besiege America, Britain and the Jewish nation.” How will they besiege America? Through a trade war. He writes in Ezekiel: The End-Time Prophet:
The United States and Britain are going to be left out in the cold as two gigantic trade blocs, Europe and Asia, mesh together and begin calling the shots in world commerce. These nations of Israel are going to be literally besieged—economically frozen out of world trade!
Herbert W. Armstrong prophesied this coming trade war as well. In the March 1971 Plain Truth, he wrote:
Either we start raising high tariff barriers against other countries, starting a trade war which in time will trigger the nuclear war that will destroy us—or American workers are going to have to meet the competition of the workers in other countries, by lowering living standards. Obviously American workers are not going to choose to do the latter. And if they don’t—well, the handwriting is on our national wall.
That is exactly what we are seeing happen today. America is raising its tariffs against other countries. This move could lead to the trade war and economic siege that will destroy America economically. “We are clearly in the early stages of the trade war that precedes this siege!” Mr. Macdonald wrote. President Trump’s tax reform plan is leading toward that siege, although he doesn’t know it yet.
Trade war is not just a fantasy. It is fast becoming a dangerous reality. To learn more about the prophesied trade war and where it will lead, read Brad Macdonald’s article “Trade Wars Have Begun.”