Davos Day 2 – The Arrival Of President Trump
My last post included Prime Minister Carney’s speech at Davos of January 21, 2025. His speech induced a tremendous amount of interesting commentary which is worthy of a separate post. We have not heard the last of that speech!
Today’s post will focus on President Trump’s speech. The speech was a classic Trumpian speech which included a healthy mix of:
The Good, The Bad and The Ugly
In this post I focus on one five minute segment of the speech where the President explained:
– his general attitude toward other countries selling their goods into the U.S. market (penetrating “Fortress America”) ; and
– his justification for imposing tariffs (costs) on goods entering “Fortress America”
Generally, this reveals much of what he understands the tariffs/costs of entering “Fortress America” to be.
Spoiler alert: The President seems to mistakenly believe that tariffs are primarily a tax/sanction on the country wishing to export goods into the United States. He doesn’t appear to understand tariffs to be largely a tax paid by the U.S. importer.
That tariffs are paid by U.S. consumers does NOT mean that they are of no cost to the exporting country. On the contrary. As the costs of importing a good increases, the demand for that good will decrease. Hence, trading nations are greatly concerned with the costs one must pay to import a product from outside the United States. In some cases the exporter may lower the cost to the importer by reducing the price. This is why the effect of the additional costs that tariffs represent must be determined on a “product by product” basis.
In summary:
A tariff is a tax paid by the U.S. importer on the cost of the import. In some cases, the exporter may lower the cost to mute the added cost imposed on the importer.
Part A – The President’s stated rationale for tariffs
Here is the where the rationale for his tariffs begins. I suggest you listen for about five minutes (to the 1:05 minute mark) before reading on.
A summary of what President Trump is saying …
Without the United States Switzerland would not even be a country. In fact Switzerland owes its existence to the United States. Why is this?
1. Switzerland is able to sell about 41 billion dollars of watches to U.S. residents. This means that 41 billion dollars of revenue coming to Switzerland is the direct result of United States consumers buying Swiss watches. It is ACCESS to the U.S. market that has provided that 41 billion of revenue to Switzerland.
On the other hand, Switzerland is NOT buying 41 billion of goods from the United States. Therefore, (according to the President) the United States runs a deficit with Switzerland, which is a bad thing. The 41 billion dollar deficit means that Switzerland is “ripping off the United States”.
2. To add insult to injury, Switzerland is NOT paying the United States a fee for accessing the United States market of consumers. Switzerland has had access for free. There is no reason why Switzerland should have “free access” to the U.S. market. In fact, it should pay for the privilege of access to the United States which has generated the 41 billion dollars of revenue.
3. In President Trump’s mind, by imposing tariffs, he is imposing an access charge to the U.S. market. He is monetizing access to the U.S. market. However, it is the American importer that will bear much of the burden of the tariff (simply a tax on importing Swiss watches).
The President appears to believe that the United States should be receiving a monetary return for allowing Switzerland to access the large U.S. consumer base (a not irrational position). Other countries should pay for the right to access the U.S. consumer market.
This is the same logic that Canada, the UK, France and India use when they consider imposing digital services taxes on companies that access the buying power of residents of other countries. Why should Facebook be able to sell digitally to the residents of other countries and not pay for that access (in some form or another)?
The Trump doctrine. It’s a simple concept. You should pay for the right to sell your products to United States residents!
But wait. Why can’t the United States simply tax the business profits of Swiss companies that sell their watches into the U.S. market? Why can’t Canada directly tax Google/Facebook on the profits they make selling to Canadian residents?
The answer is that the tax treaties generally prevent the United States from taxing the profits of Swiss companies selling into the U.S. market. The tax treaties prevent Canada from imposing income taxes on the products that Google sells into the Canadian market. This is because the “permanent establishment” clause in the tax treaties generally prevents the source country from taxing profits earned by the resident country, if the the foreign company does not maintain a “permanent establishment” in the source country.
Let’s look specifically at paragraph 1 of Article 7 of the U.S. Switzerland tax treaty. It says:
1. The business profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.
To repeat, under Article 7 of the U.S. Switzerland tax treaty, the United States cannot tax the profits of a Swiss company unless the company has a “permanent establishment” in the United States.
You will recall that the President has repeatedly encouraged companies to “move” to the United States and “manufacture” in the United States. Manufacturing in the United States would create a “permanent establishment” and allow the United States to impose direct taxation on the company’s profits.
Therefore, when the President encourages the manufacture of products in the United States he is saying (in part) please do business in the United States so that the USA has taxing rights over some or all of your profits!!
Part B – Both the Trump Tariffs and Canada’s DST (“Digital Services Tax”) are taxes imposed because the tax treaties preclude the income taxation of “business profits”
Both tariffs and DST (“Digital Services Taxes“) are fees imposed on the right to access consumer markets. Yes, they have different names. Yes, tariffs are paid directly by the importer and DSTs are paid directly by the company. But, the rationale for each is that the country wishes to charge for access to its resident consumers (mostly) where there is no right to tax business profits.
Trump government reaction to other countries charging for access to their markets (“DSTs”)
The Trump government has reacted very negatively to the idea that other countries can charge fees (in the form of DSTs and other kinds of taxes) for U.S. companies accessing their consumer markets. Significantly, the 2025 “Big Beautiful Bill” contained a provision that allowed for the United States to impose retaliatory taxes.
The Proposed S. 899 Penalty Tax On U.S. Source Income And The Decision To Renounce U.S. Citizenship
Is there any form of hypocrisy here?