Deepak Shenoy Questions Donald Trump's Proposal for "External Revenue Service"

85
2
Deepak Shenoy Questions Donald Trump's Proposal for "External Revenue Service"

Deepak Shenoy, the founder of Capitalmind, has voiced skepticism regarding Donald Trump's announcement of establishing an "External Revenue Service" to manage tariffs and revenue from foreign trade. Trump's proposal, made public on a specific date, is centered around the concept of ensuring that foreign trade partners contribute their "fair share" through a new system, separate from the Internal Revenue Service (IRS) that currently relies on taxing American citizens.

Shenoy highlighted the long-standing practice where various countries have engaged in trade with the US, accumulating the dollar in return for selling goods and purchasing US government debt, a cycle that facilitates US banks to lend to domestic consumers. He expressed caution about the potential ramifications of disrupting this financial equilibrium, emphasizing that altering the equation could result in the dollar losing its value, increased costs for America, and a surge in debt-related challenges.

The current system functions on the basis of foreign nations trading goods for US dollars and treasury securities, a dynamic that supports demand for US currency and allows for substantial lending by US financial institutions to consumers. Shenoy pointed out that Trump's proposed tariffs could upset this delicate balance, leading to a reduced foreign appetite for holding US debt, which in turn might escalate borrowing expenses for the US government. As the US grapples with mounting interest rates and borrowing costs, Shenoy suggests that implementing higher tariffs could provoke retaliatory actions from trade partners and possibly diminish their interest in investing in US debt securities, heightening financial vulnerabilities in the process.

Trump's discourse signals a significant shift in tax distribution, advocating for a transfer of the tax burden from American citizens to foreign trade counterparts. He characterized current trade agreements as insufficient and advocated for a revision to rectify what he perceives as weaknesses in the existing framework. It appears that Trump's proposed introduction of an "External Revenue Service" is part of a broader strategy to recalibrate the dynamics of international trade and financial interactions, potentially reshaping the global economic landscape.