In Response to Trump's Tax plan and the Dollar 

This was my written response to an article I read on Project Syndicate about Trump's intention to cut the Corporate tax rate as well as impose a border-adjustment tax. This is the link:


This is my response:(Comments appreciated)

Your premise is based on the assumption that owing to a floating exchange rate the US dollar will appreciate as much as the corporate tax reduction eroding any competitive gains form the reduction in the tax rate. This is very debatable on the one hand and not necessarily permanent on the other. A tax reduction increases long term investment in capital goods which includes investment in export minded companies. Whilst a currency by its mere definition is in constant search of equilibrium. You are thus comparing investment in capital goods and equipment on the one hand with a short term fluctuating price mechanism. Not comparable. Furthermore if I am an international investor who is seeking to manufacture in a particular country I will invest where there is a favourable tax treatment of my investment as well as the prospect of a stable or longer term appreciating currency

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