Wall Street is calling 911 on Section 899.
The little-known provision in the One Big Beautiful Bill Act targeting foreign investments is alarming investors and businesses alike. Section 899 is dubbed a “revenge tax” for a reason: It’s an extra charge on nations the White House says have “unfair foreign taxes” on American businesses.
The policy is essentially a tax on foreign capital—and it’s not a small one. If passed, the measure would enable the US government to raise the tax rate on businesses in so-called discriminatory countries by 5% each year, with a capped increase at 20% above the baseline rate, which could raise up to $100 billion over a decade.
"Buy American" gets expensive
Critics argue the tax would make holding US assets more expensive for foreign investors, which could push them to pull their cash out of domestic assets and invest overseas instead. That would be a huge blow for the US economy, especially at a time when the “sell America” trade has already been picking up momentum.
In an interview with Bloomberg, Allianz CIO Ludovic Subran argued the provision could catalyze a 5% plunge in the dollar, a 10% selloff in stocks, and half--point jump in Treasury yields.
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But it isn't just pro investors who are worried about the tax. A report from the Global Business Alliance, a trade group which includes firms such as Toyota and Volkswagen, estimated that Section 899 could result in 700,000 American jobs lost, with the majority of losses in states like South Carolina and Tennessee, as well as an annual $100 billion hit to GDP.
Borrowers could also be hurt, as foreign lenders opt not to do business with American companies due to the bill.
How to invest
While there’s plenty of fear around Section 899, some analysts note that the pain won’t be felt by every stock on the market.
“The direct impact from Section 899 is more pronounced for US subsidiaries of foreign companies than for US companies,” explained JPMorgan analyst Nathaniel Rosenbaum in a note last week. “The provision over the medium-longer term should favor large US multinationals, but high dividend sectors and industries could be disadvantaged (e.g., Financials, Staples, Energy, Utilities, REITs, BDCs).
Emerging markets could also benefit if foreign investors sprint for the exits. In fact, they’ve already been one of the biggest winners of the “sell America” trade, according to Bloomberg.—LB