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Economy

China hints at pushback on US border tax

Asia's biggest economy could appeal to WTO

ISSAKU HARADA, Nikkei staff writer | China

BEIJING -- China will respond if the U.S. adopts a border adjustment tax, Commerce Minister Gao Hucheng said Tuesday, raising the specter of new friction at a tense time for the trading partners.

"If the U.S. releases a specific plan, China will analyze it carefully, and respond as that analysis warrants," the minister told a news conference here.

The plan Republican Party lawmakers in the House of Representatives have proposed would exempt from taxation the profit companies earn on goods sold abroad, and instead tax imported parts and products, whose costs companies currently can deduct. This scheme rewards companies the more they export, and so is under consideration by the Donald Trump administration as a means to bring jobs back to the U.S. as promised during the campaign.

China "has consistently urged nations to respect international trade rules when setting trade policy," Gao said. Some have said that a border adjustment tax could violate World Trade Organization rules, depending on the specifics of the plan. China would likely consider a response through the WTO's arbitration system. The country has itself been taken to arbitration a number of times, and "has learned little by little how to pursue a case," said Ni Yueju of the Chinese Academy of Social Sciences.

According to Gao, some 2.66 million Chinese tourists visited the U.S. in 2015, and the country has sent the most students to the U.S. for seven years running. American exports to China created 600,000 jobs in 2015, the minister said.

"If the U.S. and China cooperate, both will benefit," Gao said. "If they fight, both will lose."

Leverage

China ran a $253.9 billion trade surplus in goods with the U.S. in 2016, according to the General Administration of Customs in Beijing. This is down 2% from the year earlier, but is nevertheless the second-highest figure ever.

China also accounts for around half of the total American trade deficit, much to Trump's chagrin. The U.S. already imposes anti-dumping tariffs on some goods made in China. While a border adjustment would affect all U.S. trading partners, additional measures could be taken targeting China in particular, some have said.

"All-out trade wars are a thing of the past," said Wang Jian, professor at the University of International Business and Economics in Beijing. "Trade friction between the U.S. and China would occur in specific sectors."

Gao noted in his news conference that China is the largest buyer of U.S. aircraft and soybeans, and the second-largest buyer of American automobiles and semiconductors -- statements reading as examples of the myriad ways Beijing could retaliate for policy changes in Washington. All eyes are now on the Trump administration, which must decide on exactly which areas to target.

Two viable candidates are steel and aluminum, which many have said are overproduced in China. The administrations of both Trump and former President Barack Obama have taken issue with China exporting such goods at ultralow prices. China sent more than 1.17 million tons of steel to the U.S. in 2016, but took in just 60,000 tons of American steel. China could have a hard time retaliating were Washington to ramp up pressure over this steep imbalance: American steelmakers produce almost no steel in China.

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