By Craig Mellow

Most of Donald Trump's Day One executive orders -- restricting gender choice, renaming the Gulf of Mexico -- had little direct effect on financial markets. One exception: the returning president's withdrawal from the global corporate minimum tax agreement reached by Joe Biden.

The details of the tax agreement, which set a floor of 15%, are complex. The politics look simpler: a quick, big win for Trump's newfound admirers in Silicon Valley. That may not prove so simple either, though.

The Biden administration pushed the tax because U.S.-domiciled tech (and pharmaceutical) giants register much of their intellectual property in low-tax jurisdictions like Ireland or Singapore. Profit derived from this IP was counted in these havens.

" Apple is on a trajectory where it will pay more tax to Ireland than to Washington," says Brad Setser, a senior fellow at the Council on Foreign Relations. "Tech and pharma companies lobbied very heavily against this."

Congressional Republicans refused to ratify the minimum tax, fearing loss of sovereignty.

Credits for research or depreciation might well bring a U.S. tech power's domestic rate under 15%, allowing another country, say France, to "top up" for its own coffers, argues Daniel Bunn, a former GOP Capitol Hill staffer who now heads the Tax Foundation.

"We don't want other countries telling us how our tax policy should work, " he argues.

Trump settled the stalemate with a stroke of his Sharpie, but may have opened a separate global can of worms.

Nineteen other countries, including the biggest European economies and Canada, have passed digital services taxes on revenue that multinational tech firms reap within their territory. These were to be rescinded in exchange for the global minimum tax (and an accompanying "pillar" assigning profit where it was earned). Now they are back.

"Countries that enacted the DST now have a green light to implement it," says William Reinsch, a senior adviser at the Center for Strategic and International Studies.

That sets the stage for a trans-Atlantic struggle that will exacerbate, if not eclipse, the battle over physical trade Trump just launched with 25% U.S. import tariffs on aluminum and steel, says Paul Monaghan, chief executive of the Fair Tax Foundation in London. "There is no sign that Europe will quietly go into the night on this," he says.

A related conflict is simmering as the European Union leans on its recently minted Digital Services Act and AI Act to scrutinize U.S. tech giants on grounds of privacy and "deceptive practices."

Vice President JD Vance told a Feb. 11 AI Summit in Paris that "a new industrial revolution will never come to pass if overregulation deters innovators from taking the necessary risks."

European regulators will dig in, dismayed by U.S. developments like Meta Platforms dropping content moderation and Elon Musk transforming X into an overtly political platform, predicts Eoin Drea, senior researcher at the Wilfried Martens Centre for European Studies.

"Tech is one area where the EU will stand firm," he says. "Musk is the best thing to happen to EU unity since Brexit."

Trump harbors a special animus for Europe, too, which may override his usual transactional instincts, CSIS' Reinsch predicts. "Trump wants to break up the EU," he says.

Big Tech may regret being caught in the crossfire. "How this benefits Meta or Google in the long term eludes me," Reinsch says.

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(END) Dow Jones Newswires

February 14, 2025 21:30 ET (02:30 GMT)

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