The third in our weekly roundup of developments affecting U.S. businesses and individuals looks at opposition to Donald Trump’s steel and aluminum tariffs, a brewing row over EU taxes targeting -- mostly U.S. -- tech companies, and a plea for safe harbor for whistleblowers.
How U.S. tariffs could take their toll
As the United States prepares to announce new tariffs on Chinese goods on March 22, the trade and investment community is struggling to absorb the effects of last month’s steel and aluminum tariffs already announced.
President Donald Trump is expected this week to announce the results of an investigation by the Office of the U.S. Trade Representative into allegations that China violates intellectual property rights by forcing American companies to transfer valuable technology.
Recent analysis suggests the U.S. may be shooting itself in the foot – and thus hobbling its own trade prospects. “We suspect that economic activity will ease in response to the tariffs,” says Michael Moran of Daiwa Capital Markets America in New York.
History is not on the White House’s side. Spain’s economy minister, Roman Escolano, said at this week’s G-20 meeting of finance ministers in Buenos Aires that most countries shared the “belief that protectionism is a huge historical mistake.”
More specifically, Moran pointed to the U.S. experience in 2002-03, when President George W. Bush imposed steel tariffs. One study, led by Joseph Francois at the University of Bern, concluded that they led to 200,000 job losses, more than the 187,000 workers in the steel industry at the time.
Meanwhile, Arthur Kroeber at Gavekal Dragonomics in Beijing points out that the U.S. steel industry is “decently profitable,” partly because it has moved to niche, higher-value production and partly because of anti-dumping duties imposed on Chinese steel imports in 2016. The U.S. aluminum industry is less healthy, with production falling by two-thirds since 2012. “But this is of little consequence,” says Mr Kroeber, given that Canada supplies 50% of U.S. needs.
Jay Powell, the Fed chair, said the issue of tariffs came up in this week’s Federal Open Market Committee meeting, which raised the benchmark funds rate to a range of 1.5 percent to 1.75 percent. Though the FOMC noted that the economic outlook has “strengthened,” tariffs – especially retaliatory ones – could become a “risk to the outlook.”
Taking a byte out of tech companies
Treasury Secretary Steven Mnuchin poured cold water on the idea of a “digital tax” on technology companies suggested by the European Commission, signalling a looming transatlantic spat to add to the tariffs wrangling. “The U.S. firmly opposes proposals by any country to single out digital companies,” he said.
The proposal, to be discussed March 22-23 by EU ministers, would take 3% of revenues of technology companies with an annual global turnover of more than €750 million (US$920 million) and total taxable revenues of €50 million generated in the EU. That would affect mostly U.S. companies such as Alphabet, Facebook and Google.
One U.S. ally is Ireland, where a low-tax regime has made it a registered home away from home for U.S tech companies. The tax could make Irish domicile less attractive, say analysts. “If adopted, €1.5-€2 billion of Irish corporate tax revenues could be exposed,” says Conall MacCoille of Davy Research in Dublin. Prime Minister Leo Varadkar was quick to denounce the proposals, saying the measures were “ill judged.”
Whistling up old controversies
Chris Wylie, who went public with the news that Cambridge Analytica, a consultancy he worked for that was hired by the Trump campaign, allegedly harvested data from more than 50 million Facebook accounts without users' permission, is not the only prominent whistleblower in the news.
One of the most famous of recent times, Bradley Birkenfeld, urged greater protections for whistleblowers in a recent lecture. “Whistleblowers are an extension of law enforcement,” the former State Street, Barclays and UBS banker, who shone a light on secretive Swiss banking and tax evasion a decade ago, told business school students at Queen's University Belfast in Northern Ireland. Birkenfeld served about 30 months in prison and was released in 2012, while the bankers he shopped avoided jail under deferred prosecution agreements.