World leaders think Trump's tax overhaul is dangerous, and they're getting ready to fight back

Michele Tantussi/Getty ImagesGerman Finance Minister Wolfgang Schaeuble and US Treasury Secretary Steven Mnuchin in Berlin

  • The finance ministers from the five-largest European economies sent a letter to Treasury Secretary Steven Mnuchin warning that the GOP tax bill could be negative for the world economy and violate international rules.
  • Chinese officials are also preparing policy changes to try to mute the impact of the tax bill.

World leaders are preparing to confront the Republican tax bill, anticipating that some of its policy adjustments could harm their economies.

Officials in major European economies and China are readying themselves for policy responses that could counteract some the effects of the GOP’s Tax Cuts and Jobs Act (TCJA).

The finance ministers from five of the largest European economies – Britain, France, Germany, Italy, and Spain – sent a letter to US Treasury Secretary Steven Mnuchin on Monday warning that the TCJA could be detrimental to the global economy and “risk having a major distorting impact on international trade.”

“It is important that the US government’s rights over domestic tax policy be exercised in a way that adheres with international obligations to which it has signed-up,” said the letter, which was first reported by Reuters..

The finance ministers also charged that the TCJA runs afoul of World Trade Organisation rules and could lead to legal challenges.

The TCJA proposes a variety of adjustments to the US tax code that would change the way the US taxes multinational and foreign companies. For instance, the finance ministers say a proposed tax on foreign income of US-based corporations could unfairly target legitimate business relationships with European companies.

In addition to the concerns from European officials, China is also preparing to counterpunch if and when the TCJA becomes law, according to Lingling Wei of The Wall Street Journal.

Chinese officials refer to the GOP bill as a “grey rhino” and are preparing new rules to ensure the tax bill does not lead to large capital outflows from the country. Such changes could include tighter capital controls, higher interest rates, and more intervention to support the country’s currency, according to the WSJ.

A conference committee of both the House and Senate members has begun work to reconcile the two chambers’ differing versions of the TCJA. In addition to merging the two versions of the bill, the conference committee will also have to resolve a series of unintended mistakes in the current versions.

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