Papers & Reports

This report examines the economic implications of escalating trade tensions in North America, focusing on the Trump administration’s tariff policies. At the time of publication, the administration had threatened and then paused a 25 percent tariff on Canadian and Mexican goods, prompting retaliatory preparations from both countries. Following the pause, Trump proceeded with a 25 percent import tax on steel and aluminum starting in March 2025, alongside plans for reciprocal tariffs on U.S. trading partners. The report documents varying perspectives on these trade conflicts and analyzes their broader economic consequences for North America and beyond, highlighting the potential disruptions and policy responses shaping international trade dynamics.

This commentary analyzes the CJEU’s decision of September 10, 2024, which overturned the General Court’s previous ruling in the Apple State aid case, ordering Apple to repay €13 billion plus interest to Ireland for unlawful State aid. The focus is on the Commission’s primary line of reasoning, which formed the basis of the appeal, divided into three key aspects: (i) the General Court’s misinterpretation of the Commission’s profit allocation analysis for Apple’s Irish branches (ASI and AOE), (ii) its treatment of Apple Inc.’s functions in profit allocation, and (iii) its infringement of the separate entity approach, the arm’s length standard (ALS), and Article 107 TFEU. The commentary concludes that the CJEU’s decision is problematic from a strict legal perspective for several reasons. First, it implicitly confirms that the Commission has a new prerogative to use the ALS (as outlined in the AOA) to assess Member States’ profit allocations. Second, it treats transfer pricing as an exact science, allowing the Commission to scrutinize methodological errors in determining the "correct" profit allocation. Third, it raises concerns about the burden of proof in State aid cases, creating uncertainty in legal standards. Finally, it illustrates how legal rules can be molded to serve political interests, as in this case, where anti-avoidance concerns were effectively disguised as anti-subsidy enforcement.

This article examines the relationship between the U.S. current-account deficit with China and its capital-account surplus, highlighting how U.S. tax policy influences capital inflows and trade imbalances. While it is widely understood that reducing imports from China would lower capital inflows, the article argues that the reverse is also true—eliminating U.S. tax subsidies for foreign capital imports would reduce Chinese investment in U.S. assets, thereby decreasing China’s incentive to export goods to the U.S. in exchange for dollars. The authors propose a series of tax reforms aimed at reducing the returns on U.S. portfolio investments by Chinese entities, including the Chinese government and its sovereign wealth fund. These reforms could lower China’s goods-trade surplus with the U.S. by 16% while avoiding the tariffs' economic drawbacks. Additionally, these reforms could increase foreign tax revenue, support U.S. domestic production, and help retain American assets within the U.S.

This article examines the potential constitutional challenges to taxation without realization in light of the U.S. Supreme Court’s decision in Moore v. United States. The ruling raised the possibility that the Court might eventually declare realization a constitutional requirement for taxation. The U.S. exit tax on expatriations is identified as the most likely candidate for a post-Moore challenge, given that it: (a) applies to individual taxpayers, (b) is imposed directly rather than through attribution, and (c) resembles the mark-to-market tax at the center of the Moore litigation, particularly targeting wealthy taxpayers who may fund such a challenge. A case challenging the exit tax could force the Court to directly address the question it avoided in Moore: whether the Sixteenth Amendment permits Congress to tax unrealized income without apportionment among the states. The article underscores how this issue remains unresolved and may have significant implications for the future of U.S. tax law.

This article examines the impact of the 2018–2019 U.S.-China trade conflict on exchange rates and trade prices, highlighting how the appreciation of the U.S. dollar (USD) influenced Chinese export pricing. The study finds that Chinese exporters significantly lowered their prices in response to the USD appreciation, effectively offsetting much of the impact of U.S. tariff hikes on post-tariff import prices. This effect was particularly pronounced for intermediate goods, which constitute a major share of Chinese exports to the U.S. The findings suggest that if U.S. trade policy itself contributed to the USD appreciation, it may have had self-defeating consequences, as the tariff-induced price increases were largely neutralized by Chinese price reductions.

This article challenges the common perception of international financial centers (IFCs), often labeled as "tax havens," as facilitators of tax evasion and money laundering. Through an extensive analysis of tax treaties, regulatory statutes, and historical literature, it examines the evolution of the global information exchange network and its role in integrating IFCs into the global financial system while restricting their use for illicit activities. The expansion of Mutual Legal Assistance Treaties (MLATs), Tax Information Exchange Agreements (TIEAs), and the OECD's Common Reporting Standard (CRS) has significantly reduced financial secrecy worldwide. The article also highlights regulatory transformations within IFCs, including the development of licensing systems, independent regulatory bodies, and compliance-driven practices. It argues that reputable IFCs now function as compliant financial hubs, much like larger onshore financial centers, rather than as enablers of misconduct. This nuanced perspective suggests that while the global financial system remains imperfect, it has made significant strides in limiting financial opacity and increasing international cooperation. Today, tax authorities have access to offshore account information through multiple established channels, including CRS-mandated annual financial account exchanges and bilateral tax treaties, ensuring greater transparency and accountability.

This article examines whether anti-tax avoidance regulations help reduce industry concentration by leveling the playing field between large and small firms. Using administrative data and analyzing the implementation of such regulations across 17 European countries, the study finds that while these rules successfully reduce tax avoidance, they have no significant impact—statistically or economically—on industry concentration. Robustness checks confirm that the lack of effect is genuine, rather than a result of insufficient statistical power. The study further explains that this outcome arises because anti-tax avoidance measures reduce tax benefits for both industry leaders and their competitors equally, limiting their influence on market structure. These findings challenge the claim that broad-based tax avoidance policies can meaningfully alter industry concentration dynamics.

This article investigates whether trade policy uncertainty (TPU) erodes consumers' purchasing power by employing a TPU-augmented structural New Keynesian Phillips Curve model and analyzing panel data from 44 countries (1995–2020). Using tariff overhang and news-based trade uncertainty as TPU metrics, the study finds that higher TPU significantly increases inflation tax, with a one log unit increase in tariff overhang raising inflation tax by 4%–6%. The impact is particularly pronounced in import-dependent economies, where rising import prices amplify inflationary pressures. The study also highlights that exchange rate adjustments can mitigate TPU’s inflationary effects under certain conditions, illustrating the interplay between trade and monetary policy. Ultimately, the findings suggest that TPU's effect on inflation tax is shaped by exchange rate volatility, import prices, and their interaction, emphasizing the need for integrated trade and monetary policies to protect consumers' purchasing power.

This article examines the adoption of Amount B of Pillar One from the OECD’s Two-Pillar framework for international tax reform within U.S. tax law. While the U.S. actively participated in the negotiations, it has not fully incorporated most aspects of the framework. However, the IRS recently issued guidance permitting U.S. taxpayers to apply Amount B, a simplified transfer pricing method aimed at standardizing return calculations for baseline marketing and distribution activities. The paper presents a discussion of Amount B to be included in the treatise Fundamentals of U.S. International Taxation by Boris I. Bittker & Lawrence Lokken, analyzing its implications for U.S. taxpayers and international tax compliance.

This article analyzes the international network of double tax treaties and its potential for enabling tax avoidance, particularly through treaty shopping. While developing countries are not universally more vulnerable to revenue losses, certain nations—such as Bangladesh, Egypt, Indonesia, Kenya, Uganda, and Zambia—face significant risks of withholding tax erosion. Using an algorithm from network theory, the study models how multinational enterprises exploit tax treaties to minimize their liabilities. It introduces the concept of "potentially aggressive tax treaties," which serve as key conduits for treaty shopping and revenue losses. The article also highlights how treaty partners can counteract the effects of tax incentives offered by developing countries by imposing top-up taxes, thereby undermining the intended benefits of these incentives.