As Treasury Secretary Scott Bescent readies for trade discussions in Switzerland, there’s growing concern among businesses regarding the potential cancellation of a tax treaty between the United States and China.
American firms operating in China could face difficulties in retrieving profits. Business groups warn that if this treaty is terminated or scaled back, they may encounter increased taxes.
“American companies might deal with higher costs, added complications in China’s tax audits, and increased tax liabilities, alongside diminished repatriation benefits,” noted Sean Stein, president of the U.S.-China Business Council, in a letter to Bessent dated May 1. “These outcomes could have widespread effects, impacting nearly every American business active in China.”
In this correspondence, Stein also sought a meeting with Treasury staff. However, representatives from the U.S.-China Business Council informed that there hasn’t been any progress on that request, although the Treasury has confirmed it received the letter.
In its U.S. First Investment Policy released on February 21, the White House indicated it is weighing the possibility of suspending tax treaties to “lessen incentives” for Americans to “invest in foreign adversaries.”
According to an April analysis by KPMG, either the U.S. or China can terminate income tax treaties by providing notice through diplomatic channels.
“If the treaty is set to conclude as of January 1, 2026, the United States must issue such notice by June 30, 2025,” a KPMG accountant wrote in last month’s report.
The Treasury has not yet provided a response to inquiries from Hill regarding the review’s status.
Bescent is slated to travel to Switzerland on Thursday, where he will engage with Lifeng, China’s deputy prime minister and chief trade negotiator. The Treasury described him as a “key representative on economic issues” in a statement made Tuesday.
China’s Foreign Ministry spokesman Lin Jiang remarked at a press conference Wednesday that, “China firmly opposes increasing U.S. tariffs. This stance remains unchanged. Additionally, we have reiterated our openness to dialogue.”
Chinese expert Bishop emphasized on Tuesday the significance of China’s readiness to engage with the U.S. regarding tariff adjustments.
Yuyuan Tantian from Chinese broadcaster CCTV reported that the U.S. has “actively” reached out to China about tariffs.
The Income Tax Treaty has played a crucial role in U.S. “industrialization,” alongside China’s admission to the U.S.-led World Trade Organization (WTO) and its designation as the “most favored nation” under U.S. trade laws, as stated by the White House in February.
This review is part of a larger effort by the administration to bolster domestic U.S. manufacturing and curb foreign trade, with a focus on achieving higher U.S. tariffs, including China’s steep three-digit tariffs.
Economic pressure on China, which initiated during Trump’s first term, has persisted through the Biden administration and intensified during Trump’s second term.
“The expectation that it would aid U.S. exports, rather than employment or capabilities, was a promise that failed to hold up, though it proved useful for exporting goods rather than for improving employment or capabilities,” noted Biden’s national security adviser Jake Sullivan in 2023.
