Copyright © HT Digital Streams Limited All rights reserved. The Economist , The Economist 3 min read 18 Dec 2025, 08:57 IST An employee counts Russian ruble banknotes at a foreign exchange shop (AFP) Summary Provisions in the Republican budget are a dangerous move America needs foreign investors, and foreign investors need America. Yet clauses buried in the Republican budget bill in Congress pose a threat to this crucial symbiosis. Under the obscure “Section 899,” the Treasury Secretary would be given the power to tax interest, dividends and rents flowing to foreigners in countries with tax systems the law defines as “unfair.” The rate will start at 5% but can go as high as 20%. This could mean lower returns for pension funds, governments and individual investors from the rest of the rich world. Companies with operations in America will also be caught in the net when they surrender their profits. A separate clause taxes at 3.5% money sent out of the country by any non-citizen. This is a worrying new front in the trade war. President Donald Trump’s tariffs have been highly disruptive, but at least America’s economy is not heavily dependent on trade, which as a share of GDP is less than half the rich-world average. The same cannot be said of foreign investment, on which America is extraordinarily reliant. Foreigners own $62 trillion in US assets (including derivatives) compared to only $36 trillion held abroad by Americans. The balance, at -90% of GDP, is by far the lowest “net international investment position” of any large, rich economy. One third of America’s national debt, amounting to $9 trillion, is held by foreigners. This is a particularly bad time for America to become less attractive to foreign investors. The budget bill, by making previous unfunded tax cuts permanent, will also make annual government borrowing worth 6-7% of GDP the norm. Treasury is likely to be exempt from Section 899, but this is not yet certain. Even if they are carved out, foreign buyers might reasonably wonder if the rules might change in the future. Scaring them when there is such a large deficit to finance is reckless, especially when foreign investors have already become shy about US assets after Mr. Trump’s “Liberation Day” Tariff Announcement. In addition, the bill works against the president’s desire to have foreign companies build factories in America. Why would they, if they and their foreign staff have to pay a high price to send money home? Capital protectionism will also hurt the rest of the world badly. Other countries may eventually create their own trade arrangements and cope with limited access to America’s goods market, which accounts for only 15% of final import demand. Being denied access to Wall Street is another matter. US stocks represent about 60% of world stocks by value, and the dollar is the world’s reserve asset. Even if American investments no longer produce large returns, foreigners will lose the benefits of diversification. The allocation of capital around the world will be distorted, making the global economy less efficient and therefore poorer over time. Optimists argue that Section 899 is a bargaining chip and that the tax on remittances is small. And didn’t other rich world countries start the tax war by cracking down on America’s tech giants with “digital services taxes” and other rules designed to expand the reach of their tax systems across borders? The proposed law specifically targets these rules; it does not give Mr Trump a free hand. The problem with these arguments is that new taxes tend to expand over time, regardless of their initial scope and size. There is no constituency in Congress to defend the interests of foreigners, and the legislature’s failure to fend off tariffs shows how unwilling it is to challenge the president’s self-inflicted protectionism. The budget bill is a sign that the world may be entering an era of hostility toward foreign capital, not just foreign goods. When that day comes, the damage will be so great that who started the fight will be irrelevant. Subscribers to The Economist can subscribe to our Opinion newsletter, which brings together the best of our leaders, columns, guest essays and reader correspondence. Get all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download the Mint News app to get daily market updates. more topics #Foreign investors Read next story