Wall Street worries about Trump's 'retaliatory tariffs' bill

As the US Senate reviews the spending package proposed by President Donald Trump worth trillions of dollars, a little-noticed provision passed by the House of Representatives is facing strong reactions from Wall Street. This provision could create a wave of concerns for international investors and businesses operating in the US market.

Specifically, Section 899 stipulates taxation on revenue from digital services such as online advertising and user data exploitation. Not stopping there, the provision also proposes a higher minimum tax on foreign entities' profits, even if those profits are generated outside US territory.

Notably, the US may impose up to 20% tax on foreign companies with investment activities in the US, including multinational corporations operating branches on US soil. According to analysts, many have called this a "retaliatory tax", as the bill's language states that this provision will only be applied if the country where the business is headquartered is deemed to have applied "unfair foreign taxes" to US companies.

The inconsistent foreign economic policy of the Trump administration has made the international market unstable. If this provision becomes official law, foreign investors' confidence in the US market could be further eroded, especially as international businesses consider the increasingly complex global tax environment.

Affected Objects

According to Section 899, foreign governments and international businesses may face additional taxes up to 20%, applied to income from US sources such as interest, dividends, and royalty fees.

The tax increase will be implemented annually, starting from 5% and gradually increasing to the maximum. The provision also expands the tax scope to profits earned in the US but transferred to parent companies abroad. Additionally, profits from selling US real estate by foreign entities deemed to have "violating behavior" will also be taxed. Trusts, global organizations, and partnerships with passive income are also impacted.

However, the bill also provides exceptions for foreign pension funds and non-profit charitable organizations to avoid affecting organizations with social or non-commercial purposes. More importantly, this tax will only apply to countries identified by the US Treasury Department as having discriminatory tax policies towards US businesses. Countries not listed will not be affected by this provision.

This bill is being closely monitored by international organizations, multinational corporations, and global financial circles, as it could change the landscape of foreign investment in the United States in the future.

Concerns from Wall Street

Financial experts and international policy makers believe that while the Trump administration aims to protect US economic interests, the consequences could be severe for the country's position in the global financial system.

One of the biggest risks is weakening demand for US government bonds – long considered the safest asset for global investors. If foreign investors – typically China (holding about $1.100 trillion in US bonds) and Japan ($1.300 trillion) – feel discriminated against or disadvantaged by new tax policies, they might reduce their USD asset holdings.

Krishna Guha, a senior expert at Evercore ISI, notes that this policy "reflects increasing distrust in the Trump administration's economic direction" and could lead to global investment capital withdrawing from the US and moving to Europe or Asia.

Many investors fear that these tax and "financial retaliation" strategies could lead to a global capital war, disrupt supply chains, drive commodity prices up, and trigger stagflation – a scenario that Bridgewater Associates founder Ray Dalio calls "significant" and potentially long-lasting.