December 12, 2017

HMM: Beijing Develops Plan to Counter Trump Tax Overhaul.

Under the plan, the people say, the People’s Bank of China stands ready to deploy a combination of tools—higher interest rates, tighter capital controls and more-frequent currency intervention—to keep money at home and support the yuan.

An official involved in Beijing’s deliberations called Washington’s tax plan a “gray rhino,” an obvious danger in China’s economy that shouldn’t be ignored. “We’ll likely have some tough battles in the first quarter,” the official said.

Central to officials’ fear is the yuan, which has just regained its footing after enormous government efforts to prop it up. Should the yuan lose steam again, the thinking goes, it could further exacerbate capital outflows in a vicious cycle.

And:

While the tax overhaul isn’t directly aimed at Beijing, it is another way China will be squeezed.

Under the tax plan now going through the U.S. legislative process, America’s corporate levy could drop to about 20% from 35%. Over the next few years, economists say, that could spur manufacturers—whether American or Chinese—to opt to set up plants in the U.S. rather than China, where total tax burdens on companies are among the highest of major economies.

Our current corporate tax code — a black hole of time-sucking, innovation-throttling cronyism — is perhaps the most enormous own-goal in modern economics.

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