The sobering reality of the mighty dollar

“Problems worthy of attacks prove their worth by hitting back.”—Adam Smith

This past Thursday, President Trump met with CEOs of major U.S. airlines and promised them a “phenomenal” tax policy that would be rolled out in a few weeks. With this statement, stocks, which had been limping a bit as some investors began to doubt the future of “the Trump rally”, caught a nice bid, along with the U.S. dollar (USD), at the expense of Treasury notes, as the ten-year rose from 2.33% to 2.44%. When the new president focuses on the economy, he focuses like a laser beam on global trade, looking to significantly reduce trade deficits with our major trading partners. With this in mind, many believe that the Trump administration will introduce a corporate tax policy that incorporates a “border adjustment tax” (BAT), where corporations are taxed at a higher rate for domestic sales and imports and not taxed on exports or sales made in overseas operations.

In theory, this would make U.S. exports more competitive at the expense of foreign competition, both abroad as well as at home. Additionally, this would provide relief for corporations with tremendous cash hoards overseas, allowing them to repatriate this cash without being taxed at their current U.S. marginal tax rate.

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