The global tax and trade issues facing advisors and clients

Global trade and tax policy questions with as-yet elusive answers could expose the U.S. economy and clients' investment portfolios to difficult tests in coming months.

On the one hand, the One Big Beautiful Bill Act became law without a so-called revenge tax on foreign investments in the U.S. after member countries in the G-7 agreed in principle to a "side-by-side" setup exempting America from minimum global duties. On the other, the mix of confusing calculations about the size and impact of President Donald Trump's tariffs and the rates of inflation, unemployment and corresponding decisions by the Fed is fueling macro-level fears about the economy. Policy experts are struggling to keep their forecasts up to date.

Financial advisors and their clients, in turn, may face even more difficulty than think tanks and stock analysts in trying to prepare for short-term volatility in the context of long-term goals. And the year-end deadline for the U.S. safe harbor from the Organisation for Economic Cooperation and Development's Pillar Two global minimum tax rate of 15% could add further complications, said Peter Barnes, who's of counsel to the International Tax Group of Caplin & Drysdale. But the removal of Section 899 duties from the law assuaged "a legitimate concern" on Wall Street that the "significant tax penalties" could have hampered economic activity, Barnes said.

"Foreign investors into U.S. companies would have had a fairly legit reason to say, 'You know, there are a lot of countries around the world where I can invest. I don't need to invest in the U.S.," he said. "Not only did you have a reasonable fear of foreign investors saying, 'I'm out of here,' but you had uncertainty because you didn't know which investors from which countries."

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Weighing competing factors

The Treasury Department and G-7 allies will need to work out the details of their June 26 understanding that include fending off objections from countries that have already agreed to the global minimum tax. But that issue may look tiny, compared to tariffs that have raked in more than $93 billion in revenue in 2025, with estimated average income losses of $2,400 in 2025 alone, due to higher prices for goods from, for example, India and their current rate of 50%. 

Looming inflation, a continuing devaluation of the dollar and supply-chain disruptions may force the Fed to move in the opposite direction from the rate cuts that Trump is pushing for so strongly out of the central bank, according to David Lesperance, the founder of immigration tax and law advisory firm Lesperance & Associates. By the fourth quarter, the effects will likely be "painfully obvious to your average consumer," he said.

"It's very volatile, and wealth doesn't like chaos," Lesperance said. "Like him or hate him, there's no doubt that the volatility factor in the market has increased dramatically with Donald Trump."

Regardless, Lesperance said that investors "dodged a bullet on the revenge tax" with its elimination from the legislation. Trump's Republican allies in Congress dropped a provision of the bill that would have hit countries with retaliatory new duties for levying what the legislation described as "discriminatory" taxes on American technology firms and other companies.

"Delivery of a side-by-side system will facilitate further progress to stabilize the international tax system, including a constructive dialogue on the taxation of the digital economy and on preserving the tax sovereignty of all countries," the Treasury Department and G-7 countries said in jointly announcing their "accepted principles" in June. The Investment Company Institute, a trade group for the largest asset management firms hailed the agreement as "successful negotiations" ensuring that the U.S. will remain "the premier destination for global investors."

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Doubts for the future

But an advocacy group for international companies that do business in America, the Global Business Alliance, pointed out after Trump signed the bill into law that the way forward on international taxes is still murky.

"While details and timeline for the framework with the G-7 have yet to be released, the [undertaxed profits rule] safe harbor is still set to expire at the end of 2025," the organization wrote in a blog post. "It is unclear how Pillar Two will be implemented after the framework unfolds."

That statement between the Treasury and G-7 allies represents "a good step forward in resolving issues involving the global minimum tax," but "2026 is coming rapidly," Barnes said.

"As a technical matter, they need to go back now and say, 'Oops, but not for the U.S.' Are they going to be able to do that in time? Are they going to do that?" he added. "It will not be surprising if one or two or more countries say, 'No.' I think that would be a mistake, but it's certainly possible."

Moreover, the highest effective tariff rates since 1933 and Trump's verbal attacks against the Fed over its refusal to cut interest rates more steeply and quickly could converge into a second spike in inflation resembling that of 2022, according to a blog last week by Ashwin Alankar, a portfolio manager who is the head of global asset allocation at Janus Henderson Investors.

"An error-driven second wave would back the Fed into a corner with no good choices," Alankar wrote. "Keeping policy accommodative — for whatever the reason — would likely cement inflation expectations at unwanted levels, distorting the important mechanism of price signals across the economy. It would also destroy the Fed's credibility. The lone alternative would be for the Fed to raise rates — as it was forced to do in the late 1970s and early 1980s — to levels that would almost certainly cause a steep economic downturn."

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Equal and opposite reaction?

That explains why jobs reports and Consumer Price Index readings will garner outsize attention in coming weeks and months. Advisors have grown accustomed to guiding clients through economic volatility, which is a key aspect of their value to customers. The political and economic climate is prompting some wealthy people to get their plans in place "in case the pendulum swings the other way" in the midterm elections next year, Lesperance said.

"Wealthy families are sitting there going, 'OK, well traditionally in U.S. politics, if one party wins the trifecta, they generally lose one or both houses of Congress in the midterms," he said. "OK, what happens if the Democrats win the trifecta and I've got Elizabeth Warren and Ron Wyden writing tax policy for the Democrats?"