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What will the Impact be of the “One Big Beautiful Bill” on International Trade and Business

Summary

The One Big Beautiful Bill Act (OBBB Act), passed by the U.S. House on July 3rd, 2025, is a sweeping budget reconciliation package that addresses taxes, spending, border security, and welfare programs. Among its many provisions are significant changes to international tax rules and trade related measures. Multinational corporations, foreign investors, and trading partners will face a shifting landscape of incentives and disincentives for cross border activities. This summary examines the key international tax reforms, trade retaliation tools, customs provisions, and broader business implications of the bill on global commerce.

Background and Legislative Context

On May 22, 2025, the U.S. House of Representatives advanced the OBBB Act under reconciliation procedures, ensuring a simple majority vote in the Senate and preventing a filibuster. The legislation reduces or expands spending across federal agencies, raises and extends the debt limit, and implements tax measures submitted by 11 House committees under the FY2025 budget resolution. While primarily aimed at domestic fiscal policy, the bill’s international tax and trade sections promise to reshape U.S. engagement with global markets.

Revised International Tax Provisions

Foreign Derived Intangible Income (FDII) and GILTI Deductions

The OBBB Act slightly reduces the deduction rates for foreign derived intangible income and Global Intangible Low Taxed Income (GILTI). FDII deductions fall to 36.5 percent (from 37.5 percent), while GILTI deductions drop to 49.2 percent (from 50 percent). These lowered deductions marginally increase the effective tax rate on income earned abroad, disincentivizing profit shifting to low tax jurisdictions but increasing U.S. corporate tax liabilities on foreign operations.

Base Erosion and Anti Abuse Tax (BEAT)

The bill raises the BEAT rate from 10 percent to 10.1 percent. Though a modest increase, it signals congressional intent to curb base erosion by multinational enterprises that make significant deductible payments (e.g., royalties, interest) to related foreign entities. U.S. businesses engaging in cross border intercompany financing or service arrangements will need to reevaluate transfer pricing policies to mitigate higher BEAT exposures.

Expanded Civil Penalties for Customs and Trade Violations

OBBB limits the expanded civil penalty framework under the Tariff Act of 1930 so that penalties apply only to customs law violations, rather than all U.S. laws. This change clarifies enforcement boundaries but maintains strong deterrents against tariff evasion, misclassification, and undervaluation at U.S. borders. Importers should anticipate rigorous customs compliance reviews and potential penalties for non customs statutory infractions will no longer trigger tariff related fines.

Trade Retaliation Measures: Section 899

Authority to Counter “Unfair Foreign Taxes”

Section 899 empowers the U.S. to impose retaliatory measures against countries it deems to have adopted “unfair” foreign taxes, including digital services taxes (DSTs). Nearly 20 jurisdictions such as Canada, France, India, and the UK are cited for DSTs, which target revenue generated by large digital platforms. Should the measure become law, the U.S. could levy additional duties on goods and services from those countries, heightening trade tensions and risking reciprocal EU or Canadian tariffs.

Impact on Withholding Taxes

Under the proposed legislation, withholding tax rates on dividends paid to Canadian corporate shareholders would increase by 5 percentage points annually until surpassing the standard U.S. statutory rate by 20 points. Currently, under the U.S.–Canada Tax Treaty, Canadian corporations pay a 5 percent rate on dividends; under Section 899, that rate would rise, undermining treaty protections and potentially deterring Canadian investment into U.S. firms. Similarly, U.S. real property sales by Canadians under FIRPTA could face higher withholding rates over time, eroding cross border real estate investments and creating liquidity challenges for foreign sellers.

Customs and Border Security Implications

Enhanced Customs Enforcement

With OBBB focused on tightening customs law enforcement and expanding civil penalties to cover tariff infractions, importers must bolster internal audit capabilities. Automated risk scoring systems at U.S. ports may flag noncompliant shipments more aggressively, leading to increased detentions, inspections, and potential seizures.

Border Infrastructure Spending

The bill allocates substantial funding to bolster U.S. border security infrastructure. While not strictly a trade measure, expedited processing lanes for compliant importers and enhanced e manifest systems could reduce wait times for legitimate cargo, improving supply chain fluidity once compliance hurdles are cleared. Conversely, stricter staffing and inspection regimes could slow trade flows for high risk consignments.

Broader Business Impacts

Cross Border Investment and Supply Chains

By reducing incentives for profit shifting (via lower FDII and GILTI deductions) and threatening retaliation against DST jurisdictions, the OBBB Act shifts the calculus of global supply chain design. Multinational firms may reexamine offshore intellectual property residuals and consider reshoring R&D or manufacturing to benefit from domestic investment incentives elsewhere in the bill.

Increased Compliance Costs

Implementing new tax rates, tracking eligibility across diverse income streams, and monitoring retaliatory list designations will drive up legal and accounting expenses for businesses. Small and medium size exporters or multinational startups may struggle to absorb these costs, leading to consolidation or outsourcing of compliance functions.

International Tax Treaty Uncertainty

Language in Section 899 challenges longstanding treaty commitments, undermining investor confidence in the stability of U.S. bilateral tax agreements. Countries targeted by U.S. retaliation could suspend or retaliate under WTO rules, triggering protracted legal disputes and prompting firms to diversify investment destinations.

Impact on Foreign Direct Investment (FDI)

By increasing effective tax rates on foreign earnings and sowing doubt over treaty protections, the act could deter FDI into the United States. Heightened tax burdens reduce after tax returns for international investors, while uncertainty around border security measures and customs penalties adds to perceived risk.

Currency and Capital Markets Reaction

Financial markets may react to these provisions by repricing U.S. equities of export oriented and multinational companies. A stronger dollar could result if foreign investors reduce U.S. asset holdings, impacting commodity prices and import costs. Conversely, sectors benefiting from enhanced border infrastructure or reshored operations might gain investor favor.

Potential Trade Disputes and WTO Implications

Dispute Settlement Risk

Retaliatory tariffs under Section 899 could provoke WTO disputes. Countries classified as “discriminatory” by the U.S. may file complaints, alleging unjustified breach of national treatment or most favored nation obligations. WTO panels could authorize counter retaliation, further disrupting key bilateral trade relationships.

Reciprocal Measures

Major trading partners especially the EU and Canada have already signaled readiness to impose counter duties on U.S. exports if Section 899 is enacted. These reciprocal measures would span sectors from aerospace to agriculture, undermining U.S. export competitiveness and potentially triggering a tit for tat escalation.

Strategic Considerations for Businesses

Scenario Planning

Multinationals should develop scenarios covering selective re location of IP, diversification of manufacturing hubs, and hedging strategies against tariff risks. Early engagement with customs brokers and tax advisors will be critical to optimize duty treatment and foreign tax credits.

Tax Treaty Review

Firms relying on treaty benefits must assess exposure under Section 899 and explore alternative structures such as treaty shopping through jurisdictions not labeled “discriminatory” while balancing legal risks of treaty abuse.

Advocacy and Monitoring

Active participation in industry groups can influence rule making. Tracking Senate amendments and final reconciled text will help businesses anticipate changes. Engaging with the Treasury and U.S. Trade Representative may yield clarifications or carve outs.

Outlook and Next Steps

Trade related provisions may be softened to secure necessary votes, but core international tax and retaliation measures are likely to survive given broad bipartisan concern over profit shifting and digital taxation. Businesses must stay agile as rules evolve, aligning global strategies with an increasingly complex U.S. fiscal and trade policy environment.

Key Takeaways

  • FDII and GILTI deductions are marginally reduced, raising effective tax rates on foreign earnings.
  • BEAT rate increases to 10.1 percent, intensifying scrutiny on cross border payments to related parties.
  • Section 899 authorizes retaliation against “unfair” foreign taxes, threatening DST jurisdictions with U.S. duties and higher withholding rates.
  • Customs compliance becomes more demanding, with expanded penalties focused solely on tariff violations.
  • Multinationals face higher compliance costs, potential treaty uncertainty, and risks of WTO disputes.
  • Strategic planning across tax, supply chain, and risk management functions is critical to navigate the new landscape.

Businesses engaged in international trade and investment should consult specialized tax, customs, and trade counsel to adapt to the OBBB Act’s evolving provisions and mitigate potential disruptions to their global operations. Feel free to reach out for advice on this subject as it will be a rush of who can adapt quickly.

Additional Trade Provisions in the OBBB Act

Beyond the international tax changes, the OBBB Act embeds specific trade related measures aimed at strengthening U.S. leverage and enforcement at the border.

  • Repeal of the “de minimis” entry privilege under the Tariff Act of 1930, so that all commercial shipments must undergo formal entry procedures regardless of value.
  • Expansion of civil penalties for misclassification, undervaluation and other customs violations, making tariff evasion a higher risk proposition for importers.
  • Creation of new Customs and Border Protection funding streams for advanced targeting technology and e manifest enhancements, designed to speed clearance for compliant trade while tightening enforcement on high risk cargo.

These provisions work in tandem with the Act’s international tax retaliation tools to present a more robust U.S. posture on both duties and non tariff enforcement.

Potential Future Effects on Global Trade

The OBBB Act’s tougher border enforcement and retaliation mechanisms promise to reshape trade dynamics well beyond U.S. shores.

  • Heightened tariff and withholding threats under Section 899 could trigger a wave of WTO disputes, prompt retaliatory duties on U.S. exports, and slow the resolution of digital services tax conflicts.
  • The chill on foreign investment especially from DST adopting jurisdictions may accelerate global supply chain diversification away from the U.S., giving competitors in Europe and Asia an opportunity to fill capacity gaps.
  • Over the long run, these policies risk fracturing multilateral trade cooperation, pushing affected countries to deepen regional blocs or bilateral agreements that circumvent U.S. oversight and erode America’s role as a rule maker in global commerce.

As the legislation takes shape in the Senate, businesses and policymakers will need to factor these shifts into strategic planning for cross border investment, supply chain resilience, and dispute resolution readiness.

Here’s a breakdown of the most prominent criticisms:

Fiscal Concerns

  • Deficit Expansion: The Congressional Budget Office estimates the bill will add $3.3 to $3.9 trillion to the federal deficit over the next decade. Critics argue this undermines the bill’s stated goal of fiscal responsibility.
  • Debt Ceiling Increase: The bill raises the debt ceiling by $5 trillion, prompting concerns about long term economic sustainability.
  • Budgetary Sleight of Hand: Some analysts accuse lawmakers of using a “current policy” baseline to mask the true cost of extending tax cuts.Tax Policy Critiques
  • Favoring the Wealthy: While the bill claims to benefit middle class families, critics argue that corporate tax cuts and estate tax repeals disproportionately help high income earners.
  • Temporary Gimmicks: Provisions like tax exemptions for tips and overtime are seen as short term political gestures that complicate the tax code without delivering lasting benefits.
  • Pass Through Loopholes: Increasing the deduction for pass through income may skew the tax code in favor of certain business structures, reducing neutrality.

Social Program Cuts

  • Medicaid and SNAP Reductions: The bill imposes stricter work requirements and funding cuts that could result in millions losing healthcare and food assistance.
  • Impact on Children and Families: Analysts warn that cuts to Medicaid and CHIP will disproportionately affect low income children, especially in rural areas.
  • State Burden Shift: States may be forced to absorb more costs, leading to budget pressures that could affect education and public health services.

Trade and International Relations

  • Retaliatory Tax Measures: Section 899 allows the U.S. to retaliate against countries with “unfair” taxes, such as digital services taxes. This could provoke WTO disputes and trade wars, especially with allies like Canada and the EU.
  • Withholding Tax Increases: The bill threatens to override treaty protections, potentially discouraging foreign investment and complicating cross border business.

AI Regulation Moratorium

  • 10 Year Ban on State AI Laws: The bill includes a controversial provision that prevents states from regulating AI for a decade, drawing criticism from civil rights groups, child safety advocates, and even Republican lawmakers.
  • Overriding State Protections: Opponents argue this undermines local efforts to address deepfakes, voter manipulation, and other emerging AI risks.

Legislative Process and Transparency

  • Rushed Passage: Lawmakers and watchdogs have criticized the frantic pace of the bill’s advancement, with some senators admitting they voted under pressure without fully understanding its contents.
  • Partisan Divide: The bill passed with razor thin margins, reflecting deep divisions even within the Republican Party.

Complexity and Compliance Burden

  • Tax Code Confusion: New provisions like “Trump Accounts” and tip exemptions introduce layers of complexity that may overwhelm taxpayers and require extensive IRS guidance.
  • Redundant Savings Vehicles: Critics say the bill adds unnecessary financial products instead of simplifying existing ones.

To navigate these complex tax and trade reforms with confidence, consider partnering with Peacock Tariff Consulting. Their deep expertise in U.S. customs law, international tax structuring, and WTO dispute strategy ensures you’ll get tailored guidance and proactive solutions.

Peacock Tariff Consulting can help you:

  • Optimize cross border supply chains
  • Assess treaty based withholding exposures
  • Monitor Section 899 developments and retaliatory measures
  • Maintain compliance while minimizing duties and penalties

Stay ahead of the curve and safeguard your global operations by leveraging Peacock Tariff Consulting’s proven track record.