Trump’s 2025 Tax Plan Could Trigger a Global Investment Shock

Trump’s 2025 tax plan is meant to jumpstart investment in the US, but it may cause serious challenges in other countries. Trade economists have shown that tariffs and trade shocks don’t just raise prices, they also make businesses more uncertain, disrupt supply chains, and slow down investment decisions. Trump’s approach tries to fix these problems with a mix of tax cuts, fewer regulations, and tariffs. This strategy supports investment at home, but it may leave the rest of the world scrambling to adjust.

The House GOP’s “One Big Beautiful Bill” includes several major incentives for businesses to invest:

• Full expensing of equipment and buildings through 2030. • A bigger Section 179 expensing cap, raised to $2.5 million and phased out above $4 million. • Immediate write-offs for domestic R&D spending. • More generous interest deductions based on EBITDA. • Renewed Opportunity Zones to support long-term investment in rural and low-income areas. • These changes are funded partly by new tariffs, expected to raise $900 billion over ten years, along with some spending cuts.

Together, these moves lower the cost of investing in the US and change how taxes affect business decisions. According to US Treasury data, the effective marginal tax rate on investment in the US before this plan was about 24-28 %, well above the OECD average of 19-22%. With these changes, the US rate could fall into the single digits, making it the most attractive place to invest among the major developed countries.

Source - US Treasury Tax Office

At the same time, Trump plans to cut regulations. His goal is to remove five old rules for every new one added. That makes it cheaper and faster to build or expand in the US. In the framework used by economists like Boehm, this doesn’t just reduce the harm from tariffs. It flips the script. Instead of holding off on investment due to uncertainty, companies now have more reason to move production and capital back to the US

But while this works well for the US, the global impact could be significant.

• First, the US budget will be under pressure. The bill would cost $5 trillion over the next decade, but only $2.3 trillion would be offset by new revenue. That means a $2.7 trillion increase in the deficit, much of it in the early years. As the government issues more debt and real interest rates rise, investors may shift away from bonds in Europe and Japan and into the U.S.
  

  

  Source - Goldman Sachs

• Second, global capital flows may change. Lower taxes on investment and higher returns in the US could pull money out of European and Asian markets and into US equities, bonds, and industrial projects.

  
  

• Third, other countries may lose tax revenue. US companies will have a strong reason to bring profits and intellectual property back home, especially with better R&D write-offs. This weakens the tax bases of countries like Ireland, Singapore, and the Netherlands, and it makes global tax coordination harder.
  

• Fourth, countries in NATO face more fiscal pressure. Under US proposals, 31 NATO allies are expected to raise military spending to five percent of GDP by 2032. That would add up to $700 bil in new costs. This comes just as the US. shifts from large stimulus to fiscal tightening, cutting spending and increasing tariff revenue.
  

• Finally, the global policy cycle is breaking apart. The US is pushing tax cuts now, but it will likely tighten its budget by mid-25. Meanwhile, China is expanding its fiscal support, and Europe may need to increase deficits to meet defense and energy needs. This divide could lead to differences in bond yields, competitive tax changes, and growing pressure on central banks outside the US.
  

Trump’s plan is internally consistent. It aims to fix the investment slowdown described by trade economists. But its side effects reach far beyond US borders. It pulls capital toward the US and forces other countries to either match the incentives or fall behind.