The great beautiful bill contains many worrying aspects that further increase the level of debt, without a strong economic impulse. Beyond the prominent tax cuts, it also includes some proposals for several taxes, such as section 899, which closely resemble capital controls. Several members of the Trump administration have spoken in favor of such controls. Like tariffs, capital controls can reduce commercial deficits and, similar to tariffs, are stagnant. In contrast to tariffs, capital controls in theory reduce the value of the dollar, says economist Rogier Quaedvlieg of ABN Amro.
Foreign investors can lose even more confidence in the US
“Section 899 of the Great Beautiful bill allows the US Government to impose taxes on individuals and companies with countries with ‘discriminatory’ fiscal regimes. According to the Fiscal Foundation, nations with ‘unfair taxes’ contribute approximately 80% of the incoming foreign investment in the US and companies of such countries.
“A decrease in the demand of other US assets would lead to higher indebtedness costs and inhibit investment, reducing productivity and trend growth. High indebtedness costs would also suppress the demand for imports, narrowing the commercial balance. However, it would also negatively impact the demand for goods produced in the country. The Federal Reserve could intervene potentially lowering the rates. Dollar, more expensive imports and narrowing the commercial balance even more.
“The general impact on the economy would not be favorable, and the repercussions for financial markets could be significantly worse. This reputational damage has undoubtedly been an important factor that has driven the devaluation of the dollar in recent months. If capital controls were implemented, there would be severe adverse effects on the dollar and yields. A depreciated dollar would increase inflation, and higher rates would make it even more difficult to invest. Summary, although the channels differ from tariffs, the result remains a stagnant shock. “
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
