[SNE] International Battle of Taxes given US Tax Reform

The US tax reform, can initiate an international battle of taxes, by commercial partners of that Nation, and possibly to legal actions before the WTO according to the Peterson Institute, Bruegel, and Osler, it is conceived that The loss of competitiveness that will motivate the application of the reform to these partner nations is widespread and will seek to lessen the negative impact.

For example, Mexico faces possible decreases in investment flows because it is more convenient for the company that considers investing in Mexico to leave its investment in the US. At the same time, there may be cross-investment of Mexican companies that could move to the US. to pay lower taxes and obtain tax benefits.

Now, the certain thing is that the fiscal scope is one of the many elements conceived by an economic agent, to make investment decisions; and without changes in Mexico, the other elements such as IMMEX benefits (manufacturing for foreign trade), labor, business strategy, etc., may imply situations where there is not a disbanding of companies in Mexico or even not completely inhibit new investments.

On the other hand, beware of the risks inherent in the United States. There have been irresponsible tax cuts and it is not known to have learned lessons. One of the relevant issues is the expansion of the public deficit, the cycle, and demographic aspect. As an example, the Ronald Reagan tax cut of 1981 had a recessive effect on the economy. It also warns that there is no evidence of general economic strengthening for a Nation that simplifies tax regulation.

The issue of debt has been a recurring problem in the US. The reform promises to generate enough investment to compensate for the drop in deposits due to lower rates. However, precisely what is mentioned at the end of the third paragraph of this article, can generate situations where only the benefits are sought without properly generating the budget compensation sought by the US government. Coupled with this, immediately when applying the reform, government revenues would fall, and they will have to be compensated with more debt. The US government, in at least 2 episodes during the Barak Obama administration, faced potentially (partial) closing of operations, due to not having the authorization to increase the debt; the current government of Donald Trump, has since March 2017, discussing the matter and there is no blank check by his Congress; so the political pressures will surely revive the volatility that this issue generates recurrently.

For its part, the IMF and the OECD agree that there could be a positive side to the short-term boost in US economic activity. The positive expectation is based on the fact that the reform pushes the aggregate demand of the United States and, in the short term, favors, for example, Mexico.

And the above is true, since the one that has greater economic activity in Mexico, even with the ambivalence that this reform generates for that country, and even if NAFTA was canceled, there will continue to be opportunity space for some Mexican economic agents to increase sales. for US purchase orders.

The truth is that there is much to analyze and conceive, for the diverse partner nations of the United States, regarding the impacts that the reform and the protectionist behavior of the United States imply.