In the stranglehold of the crisis China can barely fend off Trump's tariffs due to slump in tax revenues
China's government has a major problem in the fight against US President Trump's tariffs: Beijing has hardly any money to successfully counter the attack.
No time? blue News summarizes for you
- The US government has imposed tariffs of 20 percent on virtually all imports from China.
- China wanted to take necessary countermeasures to defend its legitimate rights and interests in this tariff issue.
- However, tax revenues in China have plummeted, leaving the government with little money to fight this battle.
Amid the escalating trade dispute between China and the US, an ally of US President Donald Trump has visited the People's Republic. Senator Steve Daines arrived in the capital Beijing. One topic is sure to be the focus of attention - the US tariffs of 20 percent on practically all Chinese imports.
The Chinese Ministry of Commerce had stated that China would take all necessary countermeasures to defend its legitimate rights and interests in this tariff issue. But there is one big problem - China's government is short of money.
As the "New York Times" writes, tax revenues in China are falling sharply. There are several reasons for the falling revenue. One important reason is deflation - a widespread fall in prices. Companies and now also the Chinese government have less money to pay their monthly debts.
Total tax revenue fell by 3.4 percent last year. This is a considerable divergence from the overall economy, which according to official statistics grew by 5 percent before adjusting for deflation. Falling tax revenues mean that China's budget deficits are widening.
VAT revenues have been falling for several years. Another problem is falling wages and increasing redundancies. As a result, income tax revenues are also falling and the Chinese are no longer buying as much, which is also affecting the state's revenue from customs duties.
As calculated by Fitch Ratings, the total revenue of the state and municipalities - including taxes and land sales - amounted to 29% of economic output in 2018. In 2025, this will only amount to 21.1 percent. In addition to weak tax revenues, the collapse of the real estate market is the main aspect of this decline.
Until recently, China's local governments derived almost 80 percent of their revenue from the sale of land to developers. But these sales have plummeted since the start of the real estate crash in 2021, which caused demand for new housing to plummet and bankrupted many developers.
Local authorities with high debts
As local governments are responsible for most pensions, medical benefits and other social spending, their debts continue to rise. The national government is not in a position to provide financial support.
Due to these factors, China is barely able to cope with the collapse of the real estate market and the near bankruptcy of hundreds of local governments. The battle against Donald Trump's tariffs is also likely to be difficult to win as a result.
