US President Donald Trump and Chinese President Xi Jinping attending a state dinner at the Great Hall of the People in Beijing in 2017. Photo: Reuters / Thomas Peter

While much Western media attention is returning to the prospect of a trade confrontation between the Trump administration and China, leaders in Beijing are concerned for the moment about US policy that looks more certain to come to fruition: tax reform.

As lawmakers in the US are poised to pass a bill that would give massive tax relief to corporations, top officials in China are busy formulating a plan in response, according to Lingling Wei at the Wall Street Journal:

In the Beijing leadership compound of Zhongnanhai, officials are putting in place a contingency plan to combat consequences for China of U.S. tax changes as well as expected interest-rate increases by the Federal Reserve, according to people with knowledge of the matter. What they fear is a double whammy sapping money out of China by making the U.S. a more attractive place to invest.

Under the US tax reform legislation expected to pass, corporate taxes could drop to 20% from 35%. Tax experts say the average US corporate tax rate after deductions is already lower than the 40% to 50% of profits Chinese companies pay taxes on.

China’s criticism of the Trump administration’s tax reform agenda was made clear as early as last April, when the Chinese Communist Party’s mouthpiece People’s Daily warned that Trump’s tax proposal would incite a “tax war,” leading to a race among powerful nations to lower taxes.

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