\n\t\n<\/p>\n
\n\tOn the afternoon of April 26, local time, U.S. Treasury Secretary Steven Mnuchin and White House National Economic Council Director Gary Cohn jointly announced the country\u2019s \u201clargest tax cut plan in history.\u201d\n<\/p>\n
\n\t\n<\/p>\n
\n\tSo what does this A4-sized tax cut plan look like?\n<\/p>\n
\n\t\n<\/p>\n
\n\tCat Brother has summarized the key points of Trump\u2019s tax cut plan:\n<\/p>\n
\n\t\n<\/p>\n<\/p>\n
\n\t\n<\/p>\n
\n\tWill money flow to the U.S.? Will the Chinese stock market fall?\n<\/p>\n
\n\t\n<\/p>\n
\n\tTrump's intention is clear: to ease the burden on American taxpayers, encourage them to invest, and\u2014even more importantly\u2014encourage capital to flow back to the United States!\n<\/p>\n
\n\t\n<\/p>\n
\n\tMajor U.S. corporations operate globally. In the past, when overseas profits were repatriated to the United States, the U.S. government imposed a 35% tax on them, which led many large companies to park their profits in \u201ctax havens\u201d to avoid paying taxes.\n<\/p>\n
\n\t\n<\/p>\n
\n\tAccording to reports, the 50 largest U.S. companies alone have as much as $1.6 trillion in profits parked in \u201ctax havens.\u201d\n<\/p>\n
\n\t\n<\/p>\n
\n\tAmong them, Apple tops the list with more than $200 billion in offshore funds. It is followed closely by Pfizer with $193.6 billion and Microsoft with $124 billion.\n<\/p>\n
\n\t\n<\/p>\n
\n\tTo give a small example, Apple\u2019s iPhones are selling like hotcakes worldwide; in the fourth quarter of 2016 alone, revenue in Greater China reached $8.785 billion. American companies are more successful than China\u2019s monopolistic enterprises\u2014they make money from people all over the world. In the past, when they earned too much, the taxes on remittances back to the U.S. were too high, so they kept the money overseas.\n<\/p>\n
\n\t\n<\/p>\n
\n\tNow that the tax on repatriated profits has been significantly reduced, it is highly likely that most of this $1.6 trillion will flow back to the United States.\n<\/p>\n
\n\t\n<\/p>\n
\n\tIn particular, the U.S. stock market has been performing strongly, with both the New York Stock Exchange and the Nasdaq hitting new record highs; as capital flows into the U.S., emerging economies will face enormous pressure.\n<\/p>\n
\n\t\n<\/p>\n
\n\tFor China, the stock market, bond market, and real estate market could all be affected\u2014especially the stock market, which continues to plummet. With U.S. stocks hitting new highs, it\u2019s a cause for concern! Furthermore, gold prices may also head lower again.\n<\/p>\n
\n\t\n<\/p>\n
\n\tIs China's Manufacturing Sector Facing a Catastrophe?\n<\/p>\n
\n\tAn even bigger trump card is that Trump has also slashed taxes for U.S. businesses.\n<\/p>\n
\n\t\n<\/p>\n
\n\tIn the past, the U.S. corporate income tax rate was approximately 35%, while Ireland\u2019s corporate tax rate was less than half that of the U.S., at about 12.5%. Multinational corporations reduced their tax liabilities by relocating overseas or engaging in cross-border mergers and acquisitions, thereby avoiding high U.S. taxes.\n<\/p>\n
\n\t\n<\/p>\n
\n\tNow that Trump wants to lower the rate to 15%, the message is clear\u2014U.S. companies should hurry up and invest more domestically, and companies from other countries are also encouraged to invest in the U.S.\n<\/p>\n
\n\t\n<\/p>\n
\n\tThis is really not good news for China. According to a 2013 research report by the Boston Consulting Group, the average cost of manufacturing goods in the United States at that time was only 5% higher than in China. By 2015, manufacturing in low-cost regions of the United States had become just as cost-effective as manufacturing in China. Even more shocking is that by 2018, the cost of manufacturing in the United States will be 2\u20133% cheaper than in China.\n<\/p>\n
\n\t\n<\/p>\n
\n\tIf the United States were to actually implement such a significant tax cut, it would mean that the cost of manufacturing in the United States would be much lower than in China.\n<\/p>\n
\n\t\n<\/p>\n
\n\tFor our country, known as the \u201cworld\u2019s factory,\u201d the impact is enormous.\n<\/p>\n
\n\t\n<\/p>\n
\n\tAccording to media reports, a logistics company in Guangzhou transported a shipment to Hainan, generating total revenue of 19,000 yuan, but its profit was only 216 yuan, of which 1,260 yuan went toward taxes.\n<\/p>\n
\n\t\n<\/p>\n
\n\tThis gives a clear picture of just how heavy the tax burden is on Chinese companies.\n<\/p>\n
\n\t\n<\/p>\n
\n\tLast year, Cao Dewang, known as the \u201cGlass King,\u201d invested $600 million in Ohio to build the world\u2019s largest single-site automotive glass factory. Using his own company\u2019s production of a single piece of glass as an example, he ran the economic numbers for manufacturing in China and the U.S. He noted that the U.S. has lower taxes, cheaper electricity and natural gas prices, and many other favorable conditions. After comparing the costs of doing business in both countries item by item, he concluded that, on balance, manufacturing glass in the U.S. would result in a 40% lower total profit than in China.\n<\/p>\n
\n\t\n<\/p>\n
\n\tHe also pointed out that the overall tax burden on China\u2019s manufacturing sector is 35% higher than that of the United States, and that it is \u201cthe highest in the world.\u201d\n<\/p>\n
\n\t\n<\/p>\n<\/p>\n
\n\t\n<\/p>\n<\/p>\n
\n\t\n<\/p>\n
\n\tWhen the U.S. cuts taxes again, the calculations show that China\u2019s overall tax burden on manufacturing is nearly 50% higher than that of the U.S.\n<\/p>\n
\n\t\n<\/p>\n
\n\tGiven this, is China\u2019s manufacturing sector still cost-competitive?\n<\/p>\n
\n\t\n<\/p>\n
\n\tWill the wealthy flee to the United States?\n<\/p>\n
\n\tUnder Trump\u2019s tax cut plan, the number of personal income tax brackets will be reduced from seven to three: 10%, 25%, and 35%. The personal income tax threshold has nearly doubled. The income tax threshold for married couples filing jointly will rise to $25,400.\n<\/p>\n
\n\t\n<\/p>\n
\n\tThe new tax reform plan will also eliminate the estate tax, the \u201cObamacare\u201d tax, the alternative minimum tax, and other taxes.\n<\/p>\n
\n\t\n<\/p>\n
\n\tAs for the scale of these tax cuts compared to China\u2019s individual income tax, Cat Brother doesn\u2019t even want to comment\u2014just take a look at the chart:\n<\/p>\n
\n\t\n<\/p>\n
\n
\n\t\n<\/p>\n
\n\tThen there\u2019s the estate tax. Because of the estate tax, wealthy Americans typically set up family trusts to manage their estates. Now, if Trump really does abolish the estate tax, not only will wealthy Americans benefit, but how many wealthy people from around the world will flock to the United States?\n<\/p>\n
\n\t\n<\/p>\n
\n\tThe yuan will face a new round of depreciation pressure\n<\/p>\n
\n\tThe RMB exchange rate has been falling steadily over the past two years! It has dropped from 6.3 all the way to 6.9, and foreign exchange reserves have fallen from nearly $4 trillion to $3 trillion.\n<\/p>\n
\n\t\n<\/p>\n
\n\tAfter various efforts by the relevant authorities to contain and curb it, it has finally stabilized at just over 7 and $3 trillion.\n<\/p>\n
\n\t\n<\/p>\n
\n\tBut it\u2019s still very risky, because the stability of foreign exchange reserves since 2017 has largely been due to domestic companies issuing bonds overseas to replenish those reserves\u2014a trend that is not sustainable. The pressures of RMB depreciation and foreign exchange reserve outflows have not yet been eliminated.\n<\/p>\n
\n\t\n<\/p>\n
\n\tWith the U.S. gradually raising interest rates and expectations of a yuan depreciation resurfacing in international markets, if Trump\u2019s tax cut policy is implemented and European countries follow suit with their own tax cuts, large amounts of capital will flow back to the U.S. and Europe, further reinforcing expectations of a yuan depreciation and likely triggering a new round of declines.\n<\/p>\n
\n\t\n<\/p>\n
\n\tThe yuan\u2019s exchange rate is likely to break through the 7 mark, and foreign exchange reserves are likely to fall below the $3 trillion psychological threshold.\n<\/p>\n
\n\t\n<\/p>\n
\n\tCould U.S. Tax Cuts Threaten China's Financial Security?\n<\/p>\n
\n\tSo, even though Trump has only presented a one-page plan, it still has to be put to a vote in Congress.\n<\/p>\n
\n\t\n<\/p>\n
\n\tBut it was precisely this single sheet of A4 paper that proved so devastating that it immediately unsettled the relevant authorities in our country. Early in the morning on April 28, the *People\u2019s Daily* was the first to publish an article titled \u201cU.S. Tax Reform: Who Are the Winners?\u201d, in which it argued that, from the perspective of other countries, U.S. tax cuts are effectively provoking a tax war!\n<\/p>\n
\n\t\n<\/p>\n
\n\tThe article claims that U.S. tax cuts could trigger systemic risks!\n<\/p>\n
\n\t\n<\/p>\n
\n\t\u201cFor companies, the question of what to do with the money saved from tax cuts is both an issue and a risk. If the investment rate in the U.S. real economy remains weak and profit margins stay low, while financial transactions such as stock trading continue to be highly profitable, companies will buy back shares to prop up their stock prices, and other investors will follow suit. The money saved from tax cuts would then inflate financial bubbles, just as it did during the era of quantitative easing. In this scenario, tax reform would not only fail to achieve its intended goals but could also become a trigger for systemic financial risks.\u201d\n<\/p>\n
\n\t\n<\/p>\n
\n\tThe *People\u2019s Daily* is worried that U.S. companies won\u2019t know what to do with the money they save from tax cuts and will end up using it to speculate in the stock market, just like some of China\u2019s financial tycoons. They really are worrying themselves sick\u2014they can\u2019t even keep China\u2019s own tycoons in check, yet they\u2019re concerned about others.\n<\/p>\n
\n\t\n<\/p>\n
\n\tFinally, the commentary also warned, \u201cWe must coordinate international tax policies with other countries to prevent mutual harm and avoid jeopardizing the global economy.\u201d\n<\/p>\n
\n\t\n<\/p>\n
\n\tThey\u2019re cutting taxes on their own without even giving us a heads-up\u2014what are we supposed to do?!\n<\/p>\n
\n\t\n<\/p>\n
\n\tCriticize it!\n<\/p>\n
\n\t\n<\/p>\n
\n\tIn response, Liao Tizhong, Director-General of the International Taxation Department of the State Taxation Administration, stated in a media interview that while U.S. tax reform is undoubtedly a sovereign act of the United States, in an era of economic globalization, sovereign policies have spillover effects and must also take into account the concerns of other countries. He said, \u201cWe unequivocally oppose tax competition. We advocate for international cooperation and coordination. This is not only China\u2019s position, but also that of all the leaders at the G20 Hangzhou Summit.\u201d\n<\/p>\n
\n\t\n<\/p>\n
\n\tHe said, \u201cTrump can cut taxes, but major powers should shoulder their responsibilities. China is the world\u2019s second-largest economy; we don\u2019t do anything irresponsible, let alone the leader of the world\u2019s largest country.\u201d\n<\/p>\n
\n\t\n<\/p>\n
\n\tIs the logic here that\u2014tax cuts are irresponsible?\n<\/p>\n
\n\t\n<\/p>\n
\n\tAs a humble taxpayer, hearing this man\u2019s words sent a shiver down my spine.\n<\/p>\n
\n\t\n<\/p>\n
\n\tHowever, China has actually implemented \u201ctax cuts\u201d recently\u2014even earlier than the United States!\n<\/p>\n
\n\t\n<\/p>\n
\n\tOn April 19, an executive meeting of the State Council chaired by Premier Li Keqiang announced six tax-reduction measures, including the consolidation of value-added tax rates. This represents a tax-reduction package worth more than 380 billion yuan, building on the 200 billion yuan in fee reductions already implemented in the first quarter.\n<\/p>\n
\n\t\n<\/p>\n
\n\tAt the time, the Premier stated, \u201cLet\u2019s finalize this matter today. The plan must be rolled out promptly, and tax cuts must be implemented without delay\u2014we must ensure that businesses feel the tangible benefits!\u201d \u201c It is worth noting that Li Keqiang cautioned the relevant departments at the meeting, \u2018Many countries are preparing to introduce tax cuts. In this new round of global competition, we must adopt a \u201dget a head start\u2019 mindset and take concrete measures to enhance the competitiveness of enterprises!\u201d\n<\/p>\n
\n\t\n<\/p>\n
\n\tDuring a press conference at this year\u2019s National People\u2019s Congress and Chinese People\u2019s Political Consultative Conference, Li Keqiang stated that the government will strive to reduce taxes and fees by 1 trillion yuan this year.\n<\/p>\n
\n\t\n<\/p>\n
\n\tThe Prime Minister\u2019s remarks are still fresh in our ears\u2014how could the relevant authorities have forgotten them?\n<\/p>\n
\n\t\n<\/p>\n
\n\tIs it because our tax cuts aren\u2019t deep enough? Or is it because we\u2019re implementing \u201cstructural tax cuts\u201d? (What a great term!)\n<\/p>\n
\n\t\n<\/p>\n
\n\tThis round of tax cuts in the U.S. is putting a lot of pressure on China. Cat Brother often says that the economies of China and the U.S. are highly interconnected, and many of China\u2019s economic policies are forced to react in response to U.S. moves. For example, when the Federal Reserve raises interest rates, we have no choice but to follow suit to maintain our exchange rate; now that the U.S. is cutting taxes, should we follow suit?\n<\/p>\n
\n\t\n<\/p>\n
\n\tOf course, the U.S. government is currently burdened with massive debt, and tax cuts on such a large scale would likely cause the deficit to soar. The return of capital to the United States and a strong dollar would also impact U.S. exports; therefore, it remains to be seen whether this tax cut plan will pass the U.S. Congress.\n<\/p>\n
\n\t\n<\/p>\n
\n\tHowever, based on the analysis above, the United States\u2019 large-scale tax cuts have already had an impact on China\u2019s financial security.\n<\/p>\n
\n\t\n<\/p>\n
\n\tIf the six tax-reduction measures announced at the State Council executive meeting\u2014including the consolidation of VAT rates\u2014can be seen as a precautionary step, then the highest leadership is fully aware of the financial risks to China posed by U.S. tax cuts.\n<\/p>\n
\n\t\n<\/p>\n
\n\tOn the afternoon of April 25, the Political Bureau of the CPC Central Committee held its 40th collective study session on safeguarding national financial security. Xi Jinping, General Secretary of the CPC Central Committee, pointed out: \u201c The spillover effects of monetary and fiscal policy adjustments in some countries could pose external shocks to China\u2019s financial security. We must have a clear understanding of existing financial risk points, strengthen our awareness of risk prevention, prepare for contingencies, monitor the situation closely, make accurate assessments, and take effective preventive measures\u2014without overlooking a single risk or letting a single hidden danger slip through the cracks.\u201d\n<\/p>\n
\n\t\n<\/p>\n
\n\tA financial security competition centered on \u201ctax cuts\u201d may have already begun.\n<\/p>\n
\n\t<\/p>","protected":false},"excerpt":{"rendered":"
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