{"id":2872,"date":"2025-06-13T03:42:42","date_gmt":"2025-06-13T03:42:42","guid":{"rendered":"https:\/\/trusteconomics.eu\/?p=2872"},"modified":"2025-06-13T03:42:42","modified_gmt":"2025-06-13T03:42:42","slug":"trump-imposes-capital-controls-on-foreign-investors","status":"publish","type":"post","link":"https:\/\/trusteconomics.eu\/index.php\/2025\/06\/13\/trump-imposes-capital-controls-on-foreign-investors\/","title":{"rendered":"Trump imposes capital controls on foreign investors"},"content":{"rendered":"\r\n\r\nDonald Trump is making a dramatic move that could change the face of global capital flows \u2013 access to the world\u2019s largest market will not be free. To participate in the US financial system, which is the deepest and most liquid in the world, comes at a significant cost.\r\n\r\n \r\n\r\nFollowing the swift passage of the Big, Beautiful Act by the US House of Representatives on May 22, a provision known as Section 899 has caught the attention of investors around the world, including a new set of \u201cretaliatory\u201d or punitive taxes on inbound foreign investment.\r\n\r\n \r\n\r\nWith the bill set to receive a public hearing in the Senate soon, there are growing concerns that some of the most sweeping changes to the tax treatment of foreign capital in the US in decades could lead to a sharp decline in foreign investment in US assets.\r\n\r\n \r\n\r\nWhat is Article 899?<\/strong>\r\n\r\n \r\n\r\nTitled \u201cEnforcement of remedies against unfair foreign taxes,\u201d Section 899 is a new provision that targets investments from countries that impose \u201cdiscriminatory and extraterritorial taxes\u201d on American businesses. The taxes named include digital services taxes, a tax on diverted profits, and undertaxed profits rules.\r\n\r\n \r\n\r\nThis provision is certainly a loaded weapon in Big Tech\u2019s negotiations with Europe over their tax status in the single market. Governments, companies, private foundations, or individuals from these countries would be charged an additional 5 percent withholding tax rate each year on income generated in the United States, potentially increasing the rate to as much as 20 percent, until the \u201cunfair taxation\u201d is eliminated.\r\n\r\n \r\n\r\nEchoing the spirit of the plan for a monetary \u201cMar-a-Lago Accord,\u201d Section 899 reflects Washington\u2019s growing readiness to leverage U.S. dominance in global capital markets to address what the Trump administration has cited as unfair treatment of American businesses abroad.\r\n\r\n \r\n\r\nWhich countries will be targeted?<\/strong>\r\n\r\n \r\n\r\nThe Section 899 measures could take effect as early as January 1 if the bill is passed by October 3. Several countries, including U.S. allies, already impose taxes that Washington has deemed \u201cunfair\u201d in a summary of the bill published by the House of Representatives Committee on Taxation.\r\n\r\n
\r\n
\"\"<\/figure>\r\n<\/div> \r\n\r\n \r\n\r\n \r\n\r\nTaxes on Big Tech<\/strong>\r\n\r\n \r\n\r\nFor example, some European countries, including France, Italy and the UK, have imposed digital services taxes of around 2% to 5%.\r\n\r\n \r\n\r\nThese taxes target the digital services economy such as online advertising, online shopping and data monetisation, sectors dominated by US tech giants such as Google, Apple, Amazon, Meta and Microsoft.\r\n\r\n \r\n\r\nMeanwhile, Australia and the UK have suspended their existing corporate profits taxes. And countries such as South Korea, Australia and Germany have implemented undertaxed profits rules.\r\n\r\n \r\n\r\nThe Undertaxed Profits Rule (UTPR) allows a country to raise taxes on a business if it is part of a larger company that pays less than the proposed global minimum tax of 15% in another jurisdiction.\r\n\r\n \r\n\r\nThis is part of the Global Tax Code of the Organization for Economic Cooperation and Development (OECD). However, the definition of an \u201cunfair tax\u201d remains unclear, as the bill gives the Minister of Finance broad discretion to determine what constitutes such a tax, leaving room for interpretation and possible expansion beyond current levels. So it remains to be seen which countries will ultimately be targeted.\r\n\r\n
\r\n
\"\"<\/figure>\r\n<\/div> \r\n\r\n \r\n\r\n \r\n\r\nCapital Control Dynamics<\/strong>\r\n\r\n \r\n\r\nHow will the provision affect U.S. assets? The provision reflects a capital control dynamic in the U.S. and could potentially cause a 5% drop in the U.S. dollar, as well as a roughly half-point increase in Treasury yields, and trigger a sell-off in the stock market.\r\n\r\n \r\n\r\nIf [Trump] goes ahead with his policy, we think that could create a big, scary moment, especially in the equity market and also, again, in the bond market. ING\u2019s global head of markets, Chris Turner, also said on Monday (June 2) that the \u201cretaliatory tax\u201d would add to the narrative of a potential sell-off of U.S. assets.\r\n\r\n \r\n\r\nIf enacted, the provision could add to the long-term federal deficit, according to the independent Joint Committee on Taxation of Congress. Cross-border income flows associated with hedge funds, private equity, sovereign wealth funds and other large global investment vehicles would potentially be disrupted by Section 899 if enacted, with significant implications for the asset management industry.\r\n\r\n
\r\n
\"\"<\/figure>\r\n<\/div> \r\n\r\n \r\n\r\n \r\n\r\nIt is being discounted as a bargaining chip\r\n\r\n \r\n\r\nIt should be noted that foreign investors hold a significant portion of the approximately $31 trillion in long-term US securities, including stocks and bonds.\r\n\r\n \r\n\r\nI don\u2019t think markets are discounting a full implementation of Section 899 today, so this could actually spook the markets quite a bit. The measure would be a form of \u201ccapital controls.\u201d This is a significant reversal of the liberalization of capital flows that characterized the era of globalization\u2014a milestone that was marked by China\u2019s entry into the World Trade Organization in 2001.\r\n\r\n
\r\n
\"\"<\/figure>\r\n<\/div> \r\n\r\n \r\n\r\n \r\n\r\nThe general view across Wall Street is that the provision would create yet another disincentive for foreign investors at a time when their once-unwavering confidence in Treasury bonds and other U.S. assets has already been shaken by Trump\u2019s erratic trade policies and the country\u2019s deteriorating fiscal accounts.\r\n\r\n \r\n\r\nThe risk of foreign capital outflows was reiterated by the independent Joint Committee on Taxation of Congress, which is tasked with producing official revenue projections for the legislation.\r\n\r\n \r\n\r\nThe provision would raise $116.3 billion over the next 10 years but would ultimately reduce annual U.S. tax revenue by $12.9 billion in 2033 and 2034.\r\n\r\n \r\n\r\nSenate Republicans will consider its potential impact before approving the measure, Majority Leader John Thune said Monday, while a key Republican negotiator on tax cuts in the House of Representatives said he hoped it would be a deterrent that would never be used.\r\n\r\n \r\n\r\nHouse Tax Committee spokesman JP Freire said the measure would not cover portfolios such as Treasury bonds, indicating uncertainty remains about its exact scope.\r\n\r\n \r\n\r\nFurther outflows would run counter to Trump\u2019s policies to encourage long-term investment in the U.S., increasing the likelihood of a withdrawal, which may explain why markets have so far been reluctant to price in the risk, Subran said. The impact could \u201ccompletely negate what he\u2019s trying to do on his policy agenda,\u201d he said.\r\n\r\n \r\n\r\nThe reshaping of globalization is happening before our eyes, with President Donald Trump\u2019s economic policies playing a key role.\r\n\r\n","protected":false},"excerpt":{"rendered":"

Donald Trump is making a dramatic move that could change the face of global capital flows \u2013 access to the world\u2019s largest market will not be free. To participate in the US financial system, which is the deepest and most liquid in the world, comes at a significant cost. Following the swift passage of the … <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[105,59,106],"tags":[719,960,52,83,640,237,969],"class_list":["post-2872","post","type-post","status-publish","format-standard","hentry","category-developed-economies","category-proposed-fiscal-policies","category-us","tag-assets","tag-capital-controls","tag-china","tag-dollar","tag-donald-trump","tag-economy","tag-investora"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2872","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/comments?post=2872"}],"version-history":[{"count":1,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2872\/revisions"}],"predecessor-version":[{"id":2873,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2872\/revisions\/2873"}],"wp:attachment":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/media?parent=2872"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/categories?post=2872"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/tags?post=2872"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}