In 2018, US companies returned more than half a trillion dollars of cash to American soil to take advantage of new tax changes that would make it more beneficial to store and spend at home than abroad. However, as exciting as this may be, the same data also suggests the pace of this repatriation is slowing, which might dramatically restrict a major source of support for Wall Street.
The frenzy to bring cash back to the US comes after US President Donald Trump passed new regulations that allow the US government to tax profits a company accumulates overseas. It does not matter where the money is being held: if there is profit, there will be taxes. Of course, the previous rules allowed for companies to “defer” US taxes on worldwide profits unless they “repatriate” the money (bring it home).
This, of course, has kept a lot of US dollars out of the hands of US citizens but the new regulation is a powerful incentive to bring the money back, where it can be redistributed into the economy. And that amounts to roughly $3 trillion in US dollars that authorities believe companies were holding in global jurisdictions from Switzerland to Ireland, held in the case or securities (like US Treasuries).
Dollar repatriation from the period between July and September fell to $93 billion. While that might sound like a lot to most of us, this is actually only about half of the volume from the second quarter and less than one-third the $300 billion brought home in the January to March period.
Furthermore, data also appears to show repatriation is happening across all sectors. In the non-financial sector, alone, JPMorgan has calculated approximately $60 billion has been repatriated in the third quarter, significantly lower than the $225 billion and $115 billion from the first and second quarters, respectively.
This is important because some analysts have concluded that repatriated money has definitely had an impact on the US economy. This money has been reinvested and reinserted into the economy through enhanced buybacks, which helps to add much-needed support to the stock markets at a time of extreme uncertainty and instability. JPMorgan warns that if this pace continues, the benefits we have seen with US repatriation to equity and bond markets through corporate bond redemptions and share buybacks are likely to disappear within the year.