Donald Trump is rapidly turning the US into the largest tax haven in the history of the world. Just look: The Treasury Department has been ordered to withdraw from the information transparency regime, which helps to reveal the identities of the beneficial owners of companies; the US administration has withdrawn from negotiations on the UN Framework Convention on International Tax Cooperation; it has stopped requiring compliance with the Foreign Corrupt Practices Act; and it is implementing a broad deregulation of cryptocurrencies.
It all seems to be part of a broader strategy to undermine institutional constraints that have been shaped over 250 years. The Trump administration is violating international agreements, ignoring conflicts of interest, dismantling checks and balances, refusing to allocate funds authorized by Congress. The administration is not engaging in political debates - it is simply trampling on the rule of law.
But there is one tax Trump does like: import tariffs. He seems to believe that these costs are paid by foreigners, providing the money to pay for tax cuts for billionaires. He also seems to believe that tariffs will eliminate the trade deficit and bring manufacturing back to the U.S. Never mind that the tariffs are actually paid by importers, raising domestic prices, and that they are being imposed at the worst possible time — just as America is beginning to recover from a wave of inflation.
Here is a basic macroeconomic truth: the multilateral trade deficit corresponds to the difference between domestic saving and domestic investment. By cutting taxes for billionaires, Trump only widens that gap, because budget deficits reduce national domestic saving. That is why - ironically - measures like tax cuts for billionaires and corporations actually increase the trade deficit.
Since Ronald Reagan, conservatives have argued that tax cuts pay off by boosting economic growth. But that didn’t happen under Reagan, and it hasn’t happened during Trump’s first term. Empirical research confirms that tax cuts for the wealthy have no significant impact on economic growth or unemployment, but they immediately and permanently increase income inequality. The proposal to extend the 2017 Tax Cuts and Jobs Act (the largest corporate tax cut in U.S. history) will add $30 trillion to the U.S. national debt over the next 37 years, and the promised economic growth will not materialize.
Trump is further increasing the trade deficit at the microeconomic level. Namely, America has become a service economy. Its main exports are, among others, services in the fields of tourism, education and health. Trump them. However, he is systematically causing harm. What tourist, student or patient would want to come to the US knowing that he could be arbitrarily stopped at the border and held in detention for weeks?
The weakening of leading American universities, the arbitrary cancellation of student visas, the elimination of funding for scientific research - all this is having an extremely negative impact on the most important sectors of the American economy.
Trump's strategic missteps are backfiring on America. China is already taking countermeasures, and it is one of the US's largest trading partners, with America critically dependent on Chinese imports. Fears of the onset of stagflation - rising inflation combined with economic stagnation - have led to a crash in stock and bond markets. And this is just the beginning.
Thanks to Elon Musk and his “Ministry of Government Efficiency” (DOGE), tax revenues could fall by more than 10% this year due to the weakening of government control. Cutting the number of employees in the US Internal Revenue Service (IRS) by about 50.000 people will lead to a loss of revenue of $ 2,4 trillion over the next ten years (for comparison: the measures of the Inflation Reduction Act, which were intended to strengthen the capacity of the IRS, were supposed to increase government revenues by $ 637 billion).
The agenda is clear: not just lower tax rates for the rich, but also weaker control over their payments. In a world where capital and the rich can freely cross borders, international cooperation is the only way for countries to ensure fair taxation of transnational corporations and the super-rich. In these circumstances, moves such as the cessation of collection of beneficial ownership data, the toleration of anonymous cryptocurrency markets, and the withdrawal from the process of drafting a new UN tax convention and a global minimum tax indicate a conscious effort to dismantle the multilateral system of combating tax avoidance and money laundering.
By putting the Foreign Corrupt Practices Act on hold, the US has sent a message that even bribery and embezzlement do not bother them. We are witnessing a clear attempt by Trump, Musk and their billionaire friends to build capitalism on the model of the lawlessness of offshore zones. This is not just a tax revolt - this is a comprehensive attack on any laws that threaten the extreme accumulation of wealth and power.
This is particularly evident in their support for cryptocurrencies. The explosive growth of unregulated crypto exchanges, online casinos, and betting platforms is fueling the growth of the global illegal economy. Under Trump, the Treasury Department has lifted sanctions and regulations on platforms that conceal transactions. Trump even signed an executive order establishing a “strategic cryptocurrency reserve” and held the first crypto summit at the White House. The US Senate is not far behind: it has not adopted regulations that would oblige crypto platforms to identify users and notify authorities about their activities.
Trump not only conducted a dubious issuance of his own “mem-coin” and may soon launch a crypto game inspired by “Monopoly,” but he also appointed a crypto industry figure to head the Securities and Exchange Commission (SEC): Paul Atkins is a member of an industry organization that promotes crypto assets and non-bank financial systems.
The essence of cryptocurrencies is secrecy. We have great currencies - the dollar, the yen, the euro and others. We also have efficient trading platforms for buying goods and services. The demand for cryptocurrencies stems from the desire to hide money. People who engage in dishonest business, including money laundering and tax evasion, do not want their actions to be easily traced.
The rest of the world cannot just stand by and watch. We know that global cooperation produces results. An example is the global minimum corporate tax (15%), now being introduced by more than 50 countries. Last year, under the leadership of Brazil within the “Group of 20” (G20), a consensus was reached that the super-rich must pay their fair share.
Although America distances itself from international agreements, its diplomatic absence can paradoxically help: multilateral negotiations can bring more ambitious results. In the past, the US would seek to water down an agreement (usually under pressure from various lobbyists) and then refuse to sign it. This was the case with the OECD negotiations on the taxation of transnational corporations. Now the rest of the world can start building a fair and efficient global tax architecture.
Combating extreme inequality through international cooperation and inclusive organizations is a real alternative to the rise of authoritarianism. America's self-isolation opens up an opportunity to reconstruct globalization on a truly multilateral basis - a "G minus one" group of countries for the 21st century.
The author is an American economic expert; he is a Nobel Prize winner in economics; he is a professor at Columbia University; he was the chief economist of the World Bank (1997–2000)
Copyright: Project Syndicate, 2025. (translation: NR)
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