The "US Priority" policy is a new strategy released by US President Trump in the national security strategy report of February 20 17, which will carry out a series of global contraction strategies in tax reduction, interest rate increase, table reduction and infrastructure construction. 12 As an important measure of the new strategy, the tax reduction bill voted by the US Senate and signed by Trump before Christmas on February 23rd will have a great impact on the economic and trade relations between the United States and other countries. The scale of this historic tax reduction bill is the largest in the United States in the past 30 years, which will effectively promote the return of overseas profits of American multinational enterprises, increase domestic investment, consumption and fiscal deficits in the United States, stimulate economic growth in the United States, and have spillover effects on the RMB exchange rate and cross-border capital flows.

First, the original intention and effect analysis of the US tax reform policy

During the campaign, Trump strongly urged manufacturing companies to return to the United States for investment. This tax cut will effectively promote multinational companies to return to the United States, which will be conducive to the mid-term elections in the United States in 20 18 and will also stimulate American companies to actively invest. The tax reduction in the next 10 year will be10.4 trillion US dollars, which will enhance its international competitiveness and further expand its existing industry advantages. With the return of corporate profits and the increase of reinvestment funds, more employment opportunities and infrastructure construction will be created, which will promote the economic growth of the United States.

The short-term benefits of tax reform are self-evident. The first is to enhance the competitiveness of American enterprises and create employment opportunities. Reducing the corporate income tax rate to 20% will make the tax burden of the United States much lower than the OECD average tax rate of 25%, which will help improve the profitability of enterprises, improve the domestic output level and increase employment. The second is to attract overseas profits back to the United States and improve the level of domestic investment. The "very competitive" and "one-off" overseas profit repatriation tax mentioned by US Treasury Secretary Stephen Nuchin may have certain preferential nature, which will attract American enterprises to repatriate their offshore profits. The third is to boost morale and win people's hearts. In the early days of Trump's tenure, political ideas such as the ban on Mu Ling and the new medical reform bill failed to achieve good results, and some promises during the campaign were also considered by the market as "thunder and rain are little". The Trump team urgently needs a "victory" to break the deadlock, improve the public support rate, and create favorable conditions for the follow-up policy proposition to gain the support of the public and Congress.

The disadvantage of the tax reform plan is that it will increase the fiscal deficit. According to the calculation of the American Tax Foundation, without considering the macroeconomic feedback effect, tax reduction will bring about a reduction of 4.4-5.9 trillion US dollars in federal income in the next decade, including a reduction of 2-2.5 trillion US dollars in personal income tax and a total reduction of 0.9-65,438+0 trillion US dollars in corporate income tax and infrastructure investment tax. According to the forecast of the Federal Budget Committee, the tax reform plan may increase the federal deficit by $3 trillion in the next five years. If the tax reform can achieve a balanced budget, the American economy needs to grow by 4.5% every year, which is a level of growth that has never appeared since the 1960s. In view of the acceleration of population aging and the slow improvement of total factor production efficiency, it is almost impossible to achieve an economic growth rate of 4.5% only through tax reform.

Fiscal stimulus will help economic growth in the short term, but the long-term effect will gradually decrease. Trump tax hopes to encourage consumption and investment by lowering the tax rate, thus promoting employment and economic growth. Judging from Trump's current policy framework, the combination of large-scale infrastructure construction and the largest tax reduction measures in history means that the Trump administration is likely to adopt expansionary fiscal policies to stimulate the economy. However, the sustainability of economic growth brought by short-term fiscal stimulus is doubtful. On the one hand, fiscal expansion can improve the output level and national income, but on the other hand, it will also bring the pressure of inflation and international capital inflow. In view of the slow improvement of labor productivity in the United States, it is difficult for fiscal stimulus to significantly increase the output level in a short period of time, which may lead to an increase in the price level, thus forcing the Federal Reserve to tighten monetary policy beyond expectations, which in turn will lead to an excessive appreciation of the US dollar, further worsening the balance of payments situation in the United States and increasing the debt burden of the government and enterprises. The result of fiscal stimulus may only bring about a short-term slight economic recovery, accompanied by a sharp rise in the price level, and may lead to economic stagflation in severe cases. In addition, from the perspective of fiscal balance, fiscal stimulus is short-term and overdrawn. The expansion of the fiscal deficit will inevitably lead Congress to ask Trump to tighten its finances at some point in the future, thus weakening the medium-and long-term economic development potential of the United States.

Second, the impact of the US tax reform on the world economy.

There are internal contradictions and conflicts in the domestic economic policy of "giving priority to the United States", which is difficult to coordinate. Large-scale infrastructure and tax reduction are bound by the debt ceiling, while raising interest rates will increase the financing cost of fiscal expansion, so it is difficult for fiscal expansion and monetary tightening to go hand in hand. As Trump's major policy strategy of "giving priority to the United States", if the tax reform in the United States can be fulfilled, such as reducing the statutory corporate tax rate to 20%, then the dollar may need to appreciate by about 20%, which will bring great benefits to the dollar, and the economic and trade relations between the United States and other countries will also have a major impact. The first is to trigger a demonstration effect and accelerate the profit return of foreign-funded enterprises in China. At present, Britain, India, South Korea and other countries have begun to formulate their own tax reduction plans, forming a competitive tax reduction trend. If the tax environment and business environment in the home country of foreign enterprises in China are better than those in China, the relevant enterprises may leave China. Secondly, the finance ministers of the five largest European economies sent a letter to the US Treasury Secretary, warning that the US tax reform plan may violate the country's double taxation regulations and may be inconsistent with global trade regulations.

Trump's domestic core economic policy of "infrastructure+tax reduction+interest rate increase+table reduction strategy" has more advantages than disadvantages in the short term. The core of Trump's domestic economic policy is "infrastructure+tax reduction+interest rate increase+table contraction", which is beneficial to the stock market and economic development in the short term, but there are inherent contradictions and conflicts in this policy combination. First, Trump's fiscal stimulus policy will increase both inflation and fiscal deficit ratio. The rising debt level will push up the yield of long-term US Treasury bonds. Trump's coming to power and the corresponding stimulus plan triggered investors' revaluation of inflation, and rising inflation expectations led to a simultaneous decline in the global bond market. Secondly, reflation and fiscal stimulus have improved the fundamentals of the US stock market and benefited cyclical industries. Tax cuts to stimulate consumption are also beneficial to the consumer industry. In anticipation of the repeal of Dodd-Frank Act, the risk appetite of the stock market has been restored, and the mood of market investors has risen.

Trump's "American priority" economic policy is to raise trade tariffs, curb illegal immigration, increase federal stimulus measures, and reduce taxes for enterprises and individuals. This can only promote GDP growth in the United States in the short term, and it remains to be seen whether economic growth will improve in the long run. Specifically, in the short term, Trump policy can boost demand and have a positive spillover effect on other economies. However, in the longer term, with the relaxation of fiscal stimulus measures, as well as promoting high trade tariffs, reducing immigration, withdrawing from the Paris Climate Agreement and tightening monetary policy, economic growth will be restrained. Trump's policy will have a negative spillover effect on other economies. This is especially true for some emerging market economies that have fixed exchange rates or dollarization. Trump's policy has a great impact because his policy will lead to an increase in US interest rates and a strengthening of the US dollar, which will be beneficial to big capital, but unfavorable to US exports and limited to small and medium-sized enterprises. Although fiscal stimulus can boost the economy in the short term, it may lead to overheating, which will further tighten the Fed's policies and eventually lead to economic recession.

Many excellent companies in the world may move to the United States because of the low tax rate in the United States. The goal of Trump's tax reform is obviously very clear, and its main purpose is to stimulate US economic growth and bring more employment opportunities to the United States. Simplifying the complicated tax law can reduce the tax pressure on American families, and the corporate tax rate will be adjusted from one of the highest in the world to one of the lowest in the world, which will attract more overseas funds to flow into the United States. Trump's tax cuts to the lowest level in the world and the abolition of inheritance tax have no less impact on the rest of the world than the Fed's interest rate hike and table contraction.

Third, actively respond to the US tax reduction policy and the "US priority" strategy.

Although the implementation of the large-scale tax reduction plan in the United States will cause fluctuations in the international tax order, especially the consensus and achievements of opposing vicious international tax competition such as "tax base erosion" and "profit transfer action plan", the primary consideration of American policy formulation is its own economic development. Therefore, in the face of the impact of American tax reduction policy and its series of "American priority" policies on China's tax reduction and fee reduction reform based on supply-side structural reform, we need to actively predict and fully respond while maintaining strategic strength. For a long time, China's large-scale tax reform has been ahead of other countries in the world. From 20 12, the pilot work of changing business tax to value-added tax was gradually rolled out, and the reform of changing business tax to value-added tax was implemented nationwide in May 20 16. In addition, governments at all levels have deepened the reform of "simplifying administration and decentralization, strengthening supervision and improving services" and implemented preferential tax policies for small and micro enterprises, greatly reducing the tax burden of market players and promoting the vigorous development of Chinese enterprises. It can be expected that China will increase its expenditure, focus on structural tax reduction and take improving people's livelihood as the main clue, which will help the two wings of revenue and expenditure to coordinate with each other and find a way that conforms to the current domestic and international economic situation and the overall layout of macroeconomic policies.

First, create a better business environment to hedge the risk and pressure of capital and profit outflow of foreign enterprises in China. China should first observe calmly and take measures according to its own supply-side structural reform and opening-up rhythm and realistic conditions. In particular, we should pay attention to overall planning, and it is unsustainable to try to stop the flow of funds by limiting capital outflows. China should start from itself, actively create a good political and business relationship and business environment, and actively attract foreign investment. Tax reform in the United States may accelerate the return of global capital to the United States. In this context, China should emphasize the importance of opening to the outside world and expand service trade. Establish a new pattern of open cooperation, implement a high-level trade and investment facilitation policy, implement a pre-entry national treatment plus negative list management system, greatly relax market access, expand the service industry to the outside world, and protect the legitimate rights and interests of foreign investment. We should treat all kinds of enterprises equally and create a fair and just business environment.

The second is to conduct a comprehensive and systematic feasibility assessment of the risks of China's investment projects in the United States. In view of the increasing fiscal deficit and debt ceiling in the United States, this paper studies the possibility of participating in infrastructure construction in the United States by means of "debt-to-equity swap" and actively safeguards its own interests. The implementation of the tax reduction policy in the United States may lead to the continuous expansion of the fiscal deficit. In this case, the value of China's investment in US Treasury bonds is facing greater risks. Whether China can ensure the safety, liquidity and appreciation of its investment in the United States will directly affect China's national interests. It is necessary for China to re-examine and timely adjust its investment ideas in the United States, combine financial investment with strategic equity investment, and moderately tilt towards the latter. China can promise not to reduce its holdings of US Treasury bonds on a large scale, but to change its form and invest in various infrastructure construction in the United States by way of equity participation. In the long run, the debt-to-equity swap scheme can gradually gain benefits through operating returns or equity dividends. Of course, this idea needs to be discussed and studied at the specific operational level. China and the United States can conduct a preliminary study first, analyze the feasibility from the legal, economic and technical levels, and finally come up with a specific plan to explore the "debt-to-equity swap" mechanism for infrastructure investment in the United States.