tax reform

The Trump Risk

  • Why it matters

    Why it matters

    The tax would affect the bottom lines of German manufactures that generate about a tenth of their sales in the US, and could well affect their stock prices.

  • Facts

    Facts

    • German industry generates an average of 10.5 percent of its sales with exports to the United States.
    • The pharmaceutical industry would be especially hard-hit by a border tax, since US exports account for 37 percent of sales.
    • A border adjustment tax becomes complicated when products consist of elements from various countries.
  • Audio

    Audio

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Congress
It may look peaceful, but inside lawmakers are plotting a move that will draw the ire of foreign firms. Source: Picture Alliance

Stock markets around the world celebrated Donald Trump’s election back in November. Investors were thrilled by his plans to cut taxes and invest in infrastructure back home. Foreign investors in particular ignored the risks, many of which are only just becoming clear.

Mr. Trump’s plans, particularly on taxes, are now getting concrete. A plan for tax reform by Republican Party lawmakers could lower the corporate tax rate from 35 percent to 20 percent and move to a territorial tax system. For the plan to be revenue neutral – and to follow through on Mr. Trump’s campaign promises – lawmakers are talking of a border-adjustment tax. That could amount to a 20-percent import levy on goods from abroad.

If passed, these measures would be especially dangerous for an exporting nation like Germany – disastrous for some of its key industrial sectors. German manufacturers generate an average of 10.5 percent of their sales through exports to the United States, according to calculations by Feri, an investment company. Companies have exported goods and services worth €108 billion, or $115 billion, to the United States in the last 12 months alone.

But the effects wouldn’t just stay with Germany. Higher taxes could have a knock-on effect on the price of goods made by German companies and sold abroad.

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