China VAT cuts boost exports to US despite tariff wars
- Jul 11, 2018 | Richard Asquith
China’s lowering of VAT in May on aluminium exports to the US and rest of the world has helped contribute to a 37% growth sales (source: Chinese Customs, June 2018). This comes despite the US imposing heavy tariffs on aluminium in March, and a spiralling trade war with China and the European Union.
Since May 2018, the VAT rate on Chinese aluminium production was cut from 17% to 16%. China’s VAT reforms, to boost exports, provide a tax advantage not available to US producers. It has a similar effect to currency manipulation – countries artificially devaluing their currencies to make their exports cheap.
VAT offers exporters to US with fiscal subsidy
Over 160 countries have implemented VAT, a tax on consumers but charged through the production chain. Exports are free from VAT – meaning exporters from VAT countries to the US have a tax advantage over domestic US companies who must pay full corporate income tax. In 2018, the Trump administration had considered a Border Adjustment Tax (also called a Destination-Based Cash Flow Tax) to counter this benefit. But the risk of falling foul of international tax treaties meant this did not progress.