Trump's Tax Strategy: How Lower Corporate Taxes and Tariffs Could Reshape U.S. Manufacturing

Dear Reader,

Today, we're diving into some of the sharpest economic thinking you’ll hear this week, courtesy of my good friend and trusted tax advisor, Tom Wheelwright. Tom has a way of cutting through the noise and showing us what really matters—especially when it comes to taxes and how they impact your financial future.

In the next five minutes, Tom is going to reveal:

• How Trump's proposed tax cuts could be the lifeline American businesses need to thrive in a tough global market.

• The hidden dangers of tariffs that might sound great in theory but could hit U.S. consumers and businesses where it hurts.

• What you need to know about the tax structure and why it could make or break the future of U.S. manufacturing.

So buckle up and get ready for some insights that could change how you think about Trump’s tax proposals—and your own tax strategy.

Trump’s Tax Plan: The Carrot and the Stick for Manufacturing

Earlier this week, I talked about Trump’s tax ideas. Today, we’ll focus on two key parts of his plan: cutting corporate tax rates and adding tariffs on imported goods. Think of this as a carrot-and-stick approach to boost U.S. manufacturing.

The Carrot: Lower Corporate Taxes

Trump's first big tax bill in 2017 lowered corporate taxes from 35% to 21%. Many economists praised this move, saying it boosted the U.S. economy and stock market. Some even say it was the best part of that tax plan.

The Tax Foundation also liked the lower tax rates but said things could be even better. They want something called "full expensing" for capital assets. In 2017, businesses could fully deduct certain assets, like machinery, from their taxes. But buildings weren't included. Trump wants to extend these benefits, which could help manufacturers even more.

Other countries allow full expensing of equipment, but like the U.S., they don’t include buildings. Many countries also have corporate tax rates of 20% or lower. For example, China has a 15% rate for many industries. Trump wants to match this by reducing the U.S. rate for manufacturers to 15%.

The Stick: Tariffs

Next comes Trump’s tariff plan. He suggests a 20% tariff on all imports, except for China, which would face a 60% tariff. A tariff is basically a tax on imported goods. It raises the price of these goods for consumers or cuts into the profits of foreign companies that export to the U.S.

Some experts oppose tariffs and prefer taxes like the Value Added Tax (VAT), which is charged on all goods sold in a country. But I believe tariffs help U.S. companies compete globally. To explain why, let’s look at an example.

The VAT vs. Tariff Debate

Imagine a U.S. company makes $100 million worth of goods and sells them in Europe for $120 million. They earn $20 million in gross profit. They then buy $120 million worth of wine from Europe and sell it in the U.S. for $130 million. At first glance, they seem to make $30 million in profit.

But Europe has a 20% VAT. So, when the U.S. company sells its goods in Europe, it loses the $20 million profit to the VAT. Now, they break even. When they sell the wine in the U.S., they end up with just $8 million in profit. Not so great, right?

Now let’s flip the script. A European company makes the same $100 million worth of goods, sells them in the U.S. for $120 million, and buys U.S. goods to resell in Europe. But after paying VAT in Europe, the European company ends up with a net loss of $13 million. So who benefits? The European government collects $20 million from the U.S. company and $22 million from the European company. The U.S. consumer ends up paying the difference.

What Happens If Trump Imposes a 20% Tariff?

Now, let’s say Trump enforces a 20% tariff on imports. The U.S. company still sells $120 million worth of goods in Europe. But when they bring the wine back into the U.S., they have to pay a $21.6 million tariff. That leaves them with a loss of $15 million unless consumers are willing to pay the extra cost.

The European company, meanwhile, pays a $24 million tariff when selling goods to the U.S. If they don’t pass this cost on to U.S. consumers, they also lose money.

Bottom Line

Trump’s plan is to push companies to move their operations back to the U.S. With a strong U.S. market and lower taxes, this could work over time. But in the short run, either U.S. businesses or consumers will feel the pinch.

Robert Kiyosaki