Speaking at the World Economic Forum in Davos on Wednesday, Merkel said European countries would have to cope with a more competitive tax environment as France and Germany attempt to create a common corporate tax regime.

US president Donald Trump’s tax overhaul would introduce cut corporate tax from 35% to 20%. It has been criticised by Democrats to benefit the wealthy and big businesses while leaving the poor behind.

European finance ministers called on the US to rethink its tax reform proposals last month, arguing that they would be discriminatory and harm the financial sector as well as international trade.

But the International Monetary Fund said this week in its update of the World Economic Outlook that the global economy could see a short-term boost as a result of the tax policy changes in the US.