Han Dieperink: Free capital
This column was originally written in Dutch. This is an English translation.
By Han Dieperink, written in a personal capacity
Financial markets are watching Trump's latest fiscal experiments with growing concern. After decades of preaching free markets, America seems to be discovering the charms of capital controls.
Who saw that one coming? The “One Big Beautiful Bill Act”—a name that sounds like it was coined by an advertising agency—contains the most radical changes to the tax treatment of foreign capital in decades.
The tax that nobody wants
The most controversial part is a 3.5% levy on money transfers abroad by non-US citizens. Officially a measure against illegal immigration, in practice it is a millstone around the neck of anyone with a green card or visa who still has family in the old country. US citizens are exempted through a tax credit – because why bother your own voters when you can bully others?
This is double taxation in its purest form: income tax has already been paid, and now there is an additional 3.5% for the privilege of transferring your own money. For countries such as El Salvador and Guatemala, where these transfers account for 20-30% of economic activity, this is economic sabotage with an official stamp.
The cynical thing is that the yield is ridiculously low: $22 billion over ten years. To put that in perspective, that's what Elon Musk loses on a good day when Tesla's share price drops.
Section 899: The capital war
But the real surprise is in Section 899 of the law. This provision targets “discriminatory foreign countries” – in other words, countries that dare to tax American tech giants through digital taxes.
France, with its 3% levy on online platforms, Germany, which is considering 10% – they will all be presented with the bill. It is the transformation of a trade war into a capital war. It is as if America is saying: ‘You tax our companies? We will tax your investors.’ Simple, but effective.
The revenge tax is escalating: an extra 5 percentage points per year, rising to 20% on top of existing rates. For investors from ‘hostile’ countries, investing in America suddenly becomes a lot less attractive. The mere existence of this law makes dollar assets less valuable to foreign investors.
European companies in the crosshairs
The consequences are concrete: Compass Group, which provides catering for American schools, and InterContinental Hotels, with its 25 luxury hotels in the US, could all fall victim to this fiscal warfare. And it doesn't stop with companies: even central banks and governments that hold US government bonds could be affected.
France and Germany together hold US$475 billion in US government bonds. If they suddenly have to pay an extra 20% tax, the yield will fall by almost 100 basis points. In other words, America is sabotaging its own financing at a time when it needs it most.
Republican headwinds
Fortunately, not all Republicans have forgotten what their party once stood for. Senators such as Mitch McConnell and Chuck Grassley have opposed these plans – not because Elon Musk called them a “disgusting abomination” (although that certainly helped), but because they understand that driving away foreign investors is not a winning strategy. McConnell dryly stated: “Tariffs drive up costs. It's a tax on ordinary working Americans.” Sometimes you just have to call a spade a spade.
The market as hostage
Wall Street warns that these plans could disrupt the US bond market – a cornerstone of the global financial system. But what should investors do? The US market is by far the largest and most liquid in the world. Many pension funds and ETFs simply cannot avoid it, which Trump is well aware of.
The Institute of International Finance has already warned of “significant contagion and spillover effects in global bond markets.” In other words, if America sneezes, the rest of the world catches pneumonia.
The great unknown
It is likely that there will be significant changes if the bill passes the Senate. Perhaps the most extreme parts will be filtered out, but perhaps not. It is Russian roulette with the global financial system.
The House of Representatives has passed a tax bill by the narrowest possible majority (215/214) that, according to the Congressional Budget Office, would add $3.8 trillion to the national debt.
The symbolism is crystal clear: America is returning to a time of capital controls and protectionism. For a country that has preached free markets for decades, this is a remarkable change of course. Whether these plans actually become law depends on the Senate, where the Republican majority is anything but united. Sometimes division is a blessing.