US corporate tax cut will trigger global race to the bottom with Europe and China

Canada, Europe and China are focused on the US tax cut bills bringing US corporate tax rates down to the average OECD tax rate. A likely response will be further corporate tax cuts in a global race to the bottom.

European governments and businesses are warning that the US tax plan will favor US companies. This is preparing the way for more corporate tax cuts in Europe.

Chinese officials refer to the GOP bill as a “gray rhino” and are preparing new rules to counteract 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.

The non-partisan Joint Committee on Taxation estimated that under a GOP tax cut bill the US GDP would be 0.8% percent higher, employment would be 0.6% higher, and personal consumption would be 0.6% higher during the 2018–2027 period due to the Act. Implementing the Act would add an estimated $1.4 trillion to the national debt over 10 years, or $1.0 trillion after macroeconomic feedback effects, in addition to the $10 trillion increase forecast under the current policy baseline.