Why a Populist Trump Administration Struck a Side Deal with the OECD

In the past year, the Trump administration has pursued a range of policies that reject multilateral cooperation in favor of bilateral deal-making. This has included abdicating international aid commitments, withdrawing from international organizations, and launching widespread tariffs to target “unfair” trade practices. Carried out ostensibly to preserve domestic sovereignty, these moves reflect a broader trend among populist leaders of rebuking “corrupt elites” who thwart the will of the people. In this case, the corrupt elites are international organizations and their bureaucrats.

At the same time, however, populist leaders have not completely exited international organizations, and indeed, often participate in less noticeable ways and quietly pay their annual dues. Why?

A recent spat involving global taxation rules shows that even the most boisterous critics of international organizations often have incentives to remain engaged.

Corporate income tax rates have declined worldwide as countries have sought to attract foreign direct investment, creating opportunities for firms to shift profits to low-tax countries and limit their tax bills. For example, from 2005–2014, Nike shifted profits to Bermuda, which had no corporate income tax, to limit its tax bills in the countries where its shoes are made, like Vietnam and Indonesia.

In an effort to ensure corporations pay their fair share of taxes, the Organization for Economic Cooperation and Development (OECD) developed the two-pillar agreement in October 2021. This deal introduced a unified tax on digital services and global minimum tax of 15 percent on corporate income. Since its inception, 147 countries signed on.

Although Trump denounced the global tax deal in an inauguration day executive order, the international community continued to move forward with implementation of the global minimum tax, and by the start of 2026, it was in effect in 62 countries or jurisdictions. In response, House Republicans threatened retaliatory taxes against countries implementing the global minimum tax. To prevent U.S. retaliatory taxes, G7 countries agreed in June 2025 on what is known as a “side-by-side” agreement that allows the U.S. international tax system to exist as a substitute for the global minimum tax’s top up taxes, while still requiring U.S. firms to pay the domestic 15 percent tax rates established by implementing countries.

The U.S. decision to negotiate its side-by-side status to the OECD agreement, rather than unilaterally withdraw and invoke retaliatory taxes, has the potential to offer important insight on the promise (or lack thereof) for international cooperation in this era of contentious geopolitics. There are three major reasons the United States went this route.

First, on issues of widespread and deep international cooperation, unilateral threats—like that of retaliatory taxes—are exceedingly costly for the United States to implement. With almost one-third of the international community having implemented the global minimum tax, a large majority of multinational companies would have been subject to the retaliatory taxes and subsequently incentivized to remove investment from the United States. The Trump administration, in other words, couldn’t follow through on threats without causing serious ripple effects for both the U.S. and the global economy.

Imposing retaliatory taxes could also have strengthened momentum around moving tax negotiations to the United Nations (UN), something the United States is squarely against. While the OECD has long been the leader in global taxation policy, low- and middle-income countries have pushed for the UN to act as the primary venue since its distinct voting rules—majority rule, rather than unanimous consent—could potentially allow for their interests to be better reflected in international tax rules. The United States has pointedly opposed this change, with a U.S. representative walking out of a UN tax negotiation meeting in February 2025 to express their displeasure. If the United States had imposed retaliatory taxes, these pressures could have impeded the success of the OECD international tax agreement and enhanced the role of the UN in international taxation.

Negotiating a side-by-side agreement was also facilitated by the fact that the United States already has a broad-based system, known as the Global Intangible Low-Taxed Income (GILTI) rules, for ensuring that firms pay a minimum tax rate. Indeed, in developing the two-pillar agreement, the OECD built on the processes established in the GILTI. Thus, when the United States requested the side-by-side agreement, the outcome was not a complete exemption of the United States but a reliance on their already established system that was the initial basis for the global framework. For this reason, the OECD could justify a side agreement, wagering that U.S. involvement is ultimately worth the different set of rules. Similarly, international agreements on anti-bribery principles and illicit finance succeeded in securing U.S. participation because they were built on established U.S. systems to be more palatable to U.S. interests.

The U.S. has indeed pulled out of a historic number of international organizations during Trump’s first year, including the recent withdrawal from 31 UN entities. However, the U.S. decision to negotiate a side-by-side agreement and thereby preserve the force and legitimacy of the OECD global minimum tax, rather than commit to widespread retaliatory taxes, provides some hope for continued international cooperation with the United States. Despite threatening public statements toward multilateral agreements, the United States appears to be willing to engage with international organizations—even if on a limited basis—when the cost-benefit analysis makes sense.

Margaret Kenney is a PhD candidate in political science at the UC Berkeley and a 2025-26 IGCC Dissertation Fellow. Her research focuses on how countries reach cooperation on technical economic issues and the downstream domestic effects of international agreements.

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