• Strategy
  • CFO.com | US

Made in China, Taxed in the U.S.

The government toughens up on imports of products that benefitted from Chinese tax breaks.

A tax surprise could await companies that manufacture in China and ship goods for sale back to the United States.

The U.S. government has started to bring subsidy cases against imports coming out of China, “and Chinese subsidiaries of U.S. companies are being caught in that net,” says Philippe Bruno, a partner with international law firm Greenberg Traurig.

Many Chinese subsidiaries benefit from government subsidies that their U.S. parent companies may not know about, according to Bruno. For example, a Chinese sub may have received municipal or provincial tax breaks for building its factory in a given location. The U.S. government may also consider loans from Chinese banks to be subsidies, because the banks are government-owned. Companies whose products have benefited from any of these breaks could find themselves facing steep tabs.

“Your goods will be subject to an additional tariff that may be expensive enough that you have to stop importing into the United States,” says Bruno.

While the new tariffs don’t signal any wrongdoing by a company, they may force companies to consider whether their manufacturing costs in China are cheap enough to offset the tax.

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