ACCORDING to President Donald Trump, money is pouring into America from abroad. The tax reform he signed into law in December means American firms can no longer defer paying taxes on profits left sitting in foreign subsidiaries. The change has led to some uplifting headlines. Apple said that it would make a one-off tax payment of $38bn relating to its past accumulation of $252bn in foreign earnings. Presumably, it will now start to bring this cash home. “Huge win for American workers and the USA!” tweeted Mr Trump. Yet despite the prospect of large-scale profit repatriations, the dollar has been strangely weak of late. Since the start of November, when tax reform began looking likely to pass, the greenback has fallen by about 3%. What is going on?
Start with the fact that repatriations are mostly not true capital inflows. An analysis by Zoltan Pozsar of Credit Suisse finds that, as of March 2017, American corporations had amassed around $2.2trn of earnings in overseas subsidiaries. About half was...Continue reading