Proposed Law Ties US-China Tax Treaty Termination to PLA Attack on Taiwan

The No Tax Treaties for Foreign Aggressors Act is a short, sharp piece of legislation that links a major international economic agreement directly to a specific military contingency. It mandates that the U.S. government must terminate the existing 1984 Income Tax Convention with the People’s Republic of China (PRC) if the President determines that the People’s Liberation Army (PLA) has launched an armed attack against the Republic of China (Taiwan).

The Automatic Economic Penalty

This bill essentially sets up an automatic economic penalty box. If the President notifies the Secretary of the Treasury that the PLA has attacked Taiwan, the Secretary then has 30 days to officially notify the PRC that the U.S. is ending the tax treaty, following the rules already set out in Article 28 of the original agreement (SEC. 2). It also requires the President to notify the Senate Committees on Foreign Relations and Finance about the decision. This means that a geopolitical military decision immediately triggers the cancellation of a complex, decades-old economic agreement.

What the Tax Treaty Actually Does

For most people, a tax treaty sounds like bureaucratic fluff. But if you work for a U.S. company with operations in China, or if you run a small business that imports or exports, this treaty is crucial. The 1984 Income Tax Convention is designed primarily to prevent double taxation—meaning you don’t pay income tax on the same dollar to both the U.S. and Chinese governments. It sets clear, reduced rates for things like dividends, interest, and royalties flowing between the two countries. Without this treaty, the default tax rates—often much higher—kick in.

The Real-World Cost of Cancellation

If this treaty is terminated, the tax friction instantly increases. For the American tech worker whose company has an office in Shanghai, or the U.S. manufacturer who sends licensing fees to a Chinese partner, their tax obligations could jump significantly. Those increased costs don’t just vanish; they get passed along to consumers, shareholders, or employees. This bill forces U.S. businesses operating in China to suddenly face higher withholding taxes and greater complexity, which could affect everything from supply chain costs to the viability of overseas operations. While the bill’s intent is to punish aggression, the immediate collateral damage is economic certainty for U.S. companies and individuals operating internationally.

Linking Policy to Conflict

What’s notable here is the complete lack of discretion once the military trigger is pulled. The bill removes any diplomatic or economic flexibility: once the President makes the determination of an armed attack, the termination of the treaty is mandatory and must happen within 30 days. This ties a major, long-term economic policy decision to a high-stakes, volatile military event. While providing a clear deterrent signal, it also means the U.S. loses a valuable economic lever and potentially limits its ability to de-escalate or manage the economic fallout through negotiation, locking in a substantial economic consequence automatically.