Despite fears of a global tax war, Donald Trump has a chance to make peace

That Donald TrumpOECDUSAOECD may unleash a global trade war is a frightening but familiar risk. Less well understood is the danger that he may also provoke a tax war. One of his first actions on returning to the White House was to warn other countries that if they adopt tax policies America dislikes, he may double tax rates on their companies and even their citizens.This would be an extraordinary escalation of a long-running dispute over how governments tax foreign companies. After years of negotiations 136 countries agreed in 2021 to establish a global minimum corporate tax, which would make it much harder for multinationals to shift their profits to tax havens. But America is doing its best to scupper the deal. Whereas Joe Biden’s administration supported it, Republicans view it as an encroachment on Congress’s taxation powers. President Trump’s threat is intended to scare other countries into not implementing it.It is easy to imagine a scenario in which the tax row blows up. Dozens of countries have already passed legislation for a global minimum, which requires them to hit any undertaxed firms, including American ones, with top-up levies. They cannot just ignore their laws to please Mr Trump. Moreover, many have also passed laws to tax companies, such as American tech giants, that provide digital services. As far as the Trump administration is concerned, the top-up taxes are extraterritorial and the digital taxes discriminatory. If it responds by doubling taxes on foreign firms and investors in America, it would invite retaliation. The same escalatory dynamic seen with tariffs would apply to taxes.But things need not be so dire. What has the makings of a big, messy dispute could, if well managed, turn into a rare example of international co-operation with Trumpian characteristics.Start with the dog that did not bark. Some hardliners in the Republican Party had wanted Mr Trump to go even further, by withdrawing America from the , the club of mostly rich countries that is managing the global-minimum-tax deal. That Mr Trump refrained from doing so suggests that his administration is still looking for a solution to the tax row in concert with other countries.In part this willingness reflects the underlying reality of taxation: all countries have a right to tax business activity within their borders. Were the Trump administration to go totally rogue, American companies would be badly exposed in their dealings abroad. Foreign governments arguably have greater leverage over America in the domain of taxation than they do via tariffs. America’s biggest firms are generally not major exporters of made-in- products (much to Mr Trump’s chagrin), which insulates them from targeted tariffs. But they bestride the globe through networks of subsidiaries, leaving them vulnerable to taxation.Another reason for compromise is that America’s tax system is already tough on companies. Asked why they base their businesses in America, bosses seldom gush about the Internal Revenue Service. Even if Mr Trump succeeds in cutting corporate tax rates, America’s overall tax regime will still be stricter than that prescribed by the deal. In fact during Mr Trump’s first term America imposed its own version of a minimum tax on firms’ international earnings, helping inspire the effort to create a global standard.All of this suggests that there ought to be enough wriggle room to find a deal that works for both America and the world. Other countries ought to recognise that the American corporate tax system, with a few tweaks to rates and coverage, is good enough. Republicans will have to recognise that an international agreement is not a terrible infringement on American sovereignty but a sensible approach to tax avoidance, which hurts America as much as other countries. Multinational companies, primed to fight every little tax increase, should recognise that a global minimum would not do much damage to their bottom lines—and would certainly be far less harmful than endless clashes between countries that layer taxes on top of tariffs. For Mr Trump it is a rare opportunity to be the author not of conflict but of an economic peace deal.