Foreign investors didn’t need another reason to be skeptical of US assets. Militant mercantilism, policy erraticism and rule of law concerns were (more than) enough.

But just in case, Donald Trump’s weaponizing the tax code against foreigners, or at least trying to.

A fractious Wall Street hullabaloo around the GOP’s “big, beautiful” budget bill crystallized into something more focused in recent days. Specifically, analysts are concerned about Section 899, a set of provisions delineated on pages 959-977, where the bill sets about describing “remedies against unfair foreign taxes.”

Long story short, Trump wants to tax foreigners hailing from countries the US judges, presumably with some input from The White House and Treasury, to be “discriminatory.”

By appearances anyway, the language applies (or at least could be applicable) to corporates, institutions, quasi-state investors, the foreign official sector and yes, even regular people (i.e., individuals investing for their own accounts) residing outside the US.

To most market observers — and certainly to those of us who understand what it is that makes the US so appealing as a destination for foreign capital — this is obviously a bad idea. But I’d encourage readers to note that Trump can spin it as just plain obvious to everyday people.

That’s a hallmark of bad Trump ideas: They’re amenable to oversimplification in the context of his broader nationalist narrative such that they can be passed off and sold to the base as common sense. Like this: “If another country taxes us unfairly, we’re gonna tax the hell out of them.”

It’s just the tariff narrative recycled, and just like the tariffs, it’s a Pandora’s box. Or a can of worms, to employ a metaphor that might be more familiar to Trump’s base.

A narrow goal of the provision is plainly to punish countries who adopted a digital services tax (Trump despises those levies), but this is part and parcel of the administration’s broader project which is itself just a giant, ironic gamble on the notion that the US is such a great place that America can charge admission fees.

The problem — one problem — with that idea is that it ignores the extent to which the free movement of goods, people and capital is one of the main reasons America is in fact such a desirable locale. In fact, you could easily argue Section 899, as it appears in Trump’s bill, is an anti-American provision if you equate America with an uncompromising version of free-market capitalism.

Moreover, it’s just stupid in the context of America’s external asset position. Trump and Stephen Miran are playing with matches while sitting in a kiddie pool full of gasoline. On page 965, the bill stipulates the tax could go as high as 20%. You don’t have to be especially gifted in the second-order thinking department to recognize that by taxing payouts on US Treasurys, you might end up reducing demand such that any revenue you bring in from the tax is more than offset by higher servicing costs for that same debt.

Put another way, if you slap a tax on the payouts from an asset, that asset becomes commensurately less attractive. The less attractive it is, the lower the market clearing price, or at least for investors to whom the tax applies. Lower clearing prices mean higher yields.

“Especially notable is that the foreign government exception put in place under Reagan (think central bank reserve ownership of USTs) would be suspended,” Deutsche Bank’s George Saravelos remarked, in a widely-cited note dated May 29. On his estimates, the de facto yield on US Treasurys for impacted investors could fall by almost 100bps, depending. “The adverse impact on demand for USTs and funding the US twin deficit at a time when this is most needed is clear,” he sighed.

He should’ve said clear to everyone except Trump. And Miran, whose efforts to distance himself from the Treasury “user fee” he floated last year are going about like Trump’s attempt to distance himself from Project 2025. “If it looks like a duck,” as they say, and this looks like a US asset user fee.

The worst part of this is the prospect that Trump would have a say in determining who gets taxed. Imagine a scenario in which he wakes up one day mad at Norway. Or irritable with Switzerland. Maybe he could raise taxes on their US asset holdings without consulting Congress — and with no justification from Treasury — maybe he couldn’t, be he could damn sure threaten as much on social media.

It wouldn’t take too many such threats before Norway’s sovereign wealth fund and the SNB started deliberating internally about the composition of their holdings. As Saravelos put it, “should the new Section 899 authority be voted in to law, it will do little to ease concerns that asset allocations are under structural reconsideration.”

Bottom line: This is a terrible idea. Ever since Trump began prosecuting his multi-faceted economic war on America’s trade partners — a conflict which set the stage for what’s now regarded as a new Cold War, with China standing in for the USSR — market participants fretted that restrictions on capital were just a matter of time. Now here we are, staring at a capital war courtesy of a provision tucked 959 pages into what would be Trump 2.0’s signature legislation.

Of course, this could be a lot of hand-wringing for nothing. Trump apologists are rolling out the same argument to defend this measure as they did to explain away the rift with NATO and the over-the-top tariff threats: It’s strategic, and the goal’s to create leverage not chaos. That argument’s getting pretty old by now, and besides, no one likes to be confronted, daily, by existential threats even if they’re empty.

“Some would argue that carve-outs [will] leave the ultimate impact [of the legislation] more constrained,” Saravelos went on. “We would counter that precisely by introducing further uncertainty and complexity on the returns on US capital, the legislation undermines the attractiveness of dollar inflows at a time when this is already put into question.”