Panicking European finance ministers threaten trade war with US over Trump tax cuts

(Express) -- Ministers from Germany, France, Italy, Spain and Chancellor Philip Hammond have signed a scathing letter to US counterpart Steven Mnuchin, warning they could retaliate with their own legislation.

They claim Mr Trump’s plans for deep US business tax cuts, currently working their way through Congress, could end up “seriously hampering genuine trade and investment flows between our countries”.

And they say the US could flout World Trade Organisation (WTO) rules by treating domestic operations differently to those from abroad.

Europe is concerned the President is using the policy to push an “America first” agenda, risking a huge row with the world’s biggest economy.

The letter stated US action to protect its tax base risked impacting “genuine business activities”.

And the ministers warned: "While the establishment of a modern, competitive and robust tax system is one of the essential pillars of a state's sovereignty, it is important the US government's rights over domestic tax policy be exercised in a way that adheres with international obligations to which it has signed up.”

Among the measures highlighted in the letter is a planned 20 per cent "excise tax" on purchases by US companies from foreign subsidiaries which would not apply to similar domestic transactions.

The letter stated: “Given this measure would impact on genuine commercial arrangements, and would do so only where payments are being made for foreign goods and services, it could discriminate in a manner that would be at odds with international rules embodied in the WTO.

"Bearing in mind that almost half of transatlantic trade is intra-company trade, this risks seriously hampering genuine trade and investment flows between our two economies, which remain a central artery of the world economy."

German finance minister Peter Altmaier told the Financial Times: “The US is our ally and it has the right to shape its tax system as it sees fit.

“But it must be in compliance with the international rules that are in effect.”

A US Treasury spokesman told the paper: “We appreciate the views of the finance ministers.

“We are closely working with Congress as they finalise the legislation.”

Mr Trump wants a single tax bill on his desk soon so he can sign it into law before the end of the year, in what would be his first major legislative achievement since taking office.

The White House said he would deliver a speech tomorrow "to the American people on how tax reform will lead to a brighter future for them and their families”.

Mr Trump has made huge promises about the plan, which he sees as a landmark in his presidency.

On Sunday, he tweeted: "Getting closer and closer on the Tax Cut Bill. Shaping up even better than projected.

“House and Senate working very hard and smart. End result will be not only important, but SPECIAL!"

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