In a highly-provocative move, the Chancellor has teamed up with four other European finance ministers to claim US tax cuts could start a trade war.
Along with his counterparts in France, Germany, Italy and Spain, Mr Hammond has put his name to a hard-hitting letter to US Treasury Secretary Steven Mnuchin.
In the letter, which runs to three pages, the five European ministers express their “significant concerns” about the President’s tax changes “having a major distortive impact on international trade”.
They also claim Mr Trump’s proposed changes could contravene World Trade Organisation (WTO) rules and America’s own tax guidelines.
Mr Hammond’s decision to sign the letter will be seen as hugely controversial, since it risks angering the President at a time when the UK is trying to strengthen its post-Brexit trade links with the US.
The fact that the pro-Remain Chancellor has joined forces with colleagues from leading EU countries to attack tax cuts is also likely to infuriate right-wing Eurosceptic Tory MPs who already want him sacked.
The move also comes only days after the Prime Minister clashed with Mr Trump over the President’s bitterly controversial decision to move the US embassy in Israel from Tel Aviv to Jerusalem.
And it follows disagreements on the President’s policy on climate change, immigration and decision to promote UK far-right group Britain First, all of which have led to plans for a state visit to the UK by Mr Trump being postponed indefinitely.
The finance ministers signing the letter are from Europe’s five largest economies.
They claim the tax cut plans would flout international agreements and undermine trade, threatening to turn a Washington policy battle into a transatlantic row.
In their letter, the ministers – Peter Altmaier of Germany, Bruno Le Maire of France, Pier Carlo Padoan of Italy, Cristóbal Montoro of Spain and Mr Hammond – raise the possibility of Europe retaliating if the President’s proposed tax cut legislation becomes law.
Although Mr Hammond’s involvement in the letter will be controversial, Sky News understands that it was cleared by both 10 Downing Street and the Foreign Office.
The finance ministers write: “While the establishment of a modern, competitive and robust tax system is one of the essential pillars of a state’s sovereignty, it is important that the US government’s rights over domestic tax policy be exercised in a way that adheres with international obligations to which it has signed up,” the ministers said.
“The inclusion of certain less conventional international tax provisions could contravene the US’s double taxation treaties and may risk having a major distortive impact on international trade.”
The letter highlights concerns in Europe that the Trump administration will use tax reform as a route to promote “America first” trade discrimination, escalating tensions that have already risen in other policy areas like the environment and Middle East peace.
The ministers insisted they were not seeking to intervene in a domestic tax debate, which they called one of “the essential pillars of a state’s sovereignty”.
But they warn Mr Mnuchin that Washington should not start a trade dispute under the guise of anti-avoidance measures in taxation.
“We have strong concerns if [US action to protect its tax base] is done via measures that are not targeted on abusive arrangements as this would impact on genuine business activities,” they wrote.
In addition to Mr Mnuchin, the letter was sent to Gary Cohn, the top White House economic adviser, along with heads of congressional committees currently locked in negotiations over the tax bill passed by the Senate and House of Representatives.
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Responding to the letter, a US Treasury spokesman said: “We appreciate the views of the finance ministers. We are closely working with Congress as they finalise the legislation.”
On Sunday, Mr Trump posted on Twitter: “Getting closer and closer on the Tax Cut Bill. Shaping up even better than projected. House and Senate working very hard and smart. End result will be not only important, but SPECIAL!”