Tags: Trump Administration | Trump | Tax | War | China | Countries

China Says Trump Starting 'Tax War'

China Says Trump Starting 'Tax War'
Gualtiero Boffi | Dreamstime.com

By    |   Wednesday, 03 May 2017 11:59 AM

President Donald Trump’s plan to slash business taxes reportedly is stoking fears in China of a “tax war” that will prompt companies to pull out of China.

The Trump administration has proposed slashing corporate taxes from 35 percent to 15 percent and provide a one-time repatriation rate for international earnings parked overseas with an estimate value of more than $2.6 trillion.

China also has tried for years to reduce business costs. “Now, Chinese officials and executives worry that the tax proposal Mr. Trump announced last week will set back China’s global competitiveness and spur companies to invest in America instead of China,” The Wall Street Journal reported.

In anticipation of the U.S. tax move, the State Council, China’s cabinet, said in April that the government will reduce corporate taxes by over $55 billion to “improve business conditions,” the Journal reported.

The Communist Party’s newspaper, People’s Daily, warned on Friday that the new U.S. plan could trigger a “tax war” if countries start competing to offer the lowest rates.

“From the perspective of other countries, the U.S. tax cut is in fact provoking a tax war,” the People’s Daily said. These cuts will “cause the international tax order to fall into chaos.”

The proposed plan would undermine international efforts to combat tax avoidance, said the article by commentator Wei Liang.

“In response, some powerful countries will join in this competition to reduce taxes … to set up tax havens,” it added. “Furthermore, the U.S. tax cut will harm some export-oriented countries that are powerless to compete in tax reductions.”

Despite China’s reputation as an export and manufacturing juggernaut, rising labor and land costs and slowing economic growth are eroding its edge, the Journal reported.

“China is losing its competitive advantage,” Liu Huan, a professor of the Central University of Finance and Economics and an adviser to the State Council, told the Journal “There is no dispute now that Chinese companies’ tax burdens are relatively large.”

To be sure, many American businesses are leaving China "due to rising costs, fierce domestic competition and an intrusive state," the South China Morning Post reported.

"A survey by the American Chamber of Commerce in China in late 2016 showed that one in four U.S. businesses there had moved operations out of the country or planned to do so, citing rising costs and protectionism," the Post reported.

If Trump’s tax plan is fully enacted, it could “create a shock to the global and Chinese economy,” Liu Li-gang, the chief China economist at Citigroup in Hong Kong, told the SCMP.  

“Maybe China will have to follow suit and cut its own domestic corporate tax.”

World Bank figures for 2016 show that total tax burden on Chinese businesses are among the highest of major economies: 68% of profits, compared with 44% in the U.S. and 40.6% on average world-wide, the Journal reported.

The figures include national and local income taxes, value-added or sales taxes, and any mandatory employer contributions for welfare and social security, the Journal reported.

(Newsmax wires services contributed to this report).

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Beijing believes rising costs are eroding its competitiveness and U.S. plans will make it worse
Trump, Tax, War, China, Countries
Wednesday, 03 May 2017 11:59 AM
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