China opens market: massive reduction in import tariffs

China opens market: massive reduction in import tariffs

Under the pressure of the trade war with the USA, china is opening the doors to its market a little wider. At the beginning of the year, the second-largest economy lowers tariffs on imports worth several hundred billion euros.

As reported by the state council in beijing, import duties will be reduced to more than 850 good. The tariff reductions are supposed to come from the 1. He has been able to reduce the costs of importing consumer goods, high-tech parts, special medicines and frozen pork, among other things, since january 1.

Although at first glance the move has nothing to do with the punitive tariffs in the conflict with the u.S., it indirectly concerns two important points in the trade war that has been going on for more than a year now. First, the tariff reduction supports the argument of the government in beijing that china’s economy will open up further. "The tariff adjustment will help reduce the cost of imports and bring openness to a higher level," the council of state pointed out.

Secondly, the tariff cuts pave the way for the now agreed expansion of imports from the USA. As reported by U.S. Trade representative robert lighthizer, china has promised to increase imports from the U.S. By 200 billion U.S. Dollars over two years in the partial agreement reached in mid-december. At least $40 billion a year will go to U.S. Farmers, a key constituency for U.S. President donald trump.

Details of the partial agreement for the first phase of negotiations have not yet been made public, but china intends to abide by world trade organization (WTO) rules in expanding imports from the U.S. "If we reduce tariffs only for the u.S., many countries will complain," wang huiyao of think tank center for china and globalization (CCG) in peking told the wall street journal.

China also wants to buy more pork from the U.S. In particular. Due to the rampant african swine fever, china must fill the gap on the world market. According to estimates, around half of the animal population in china has been wiped out by the virus, which is not dangerous for humans. The price of pork has doubled and become a strong driver of inflation. China is the largest consumer and producer of pork in the world. Strong demand is causing meat prices to rise in germany as well.

The tariff cuts will affect a total of $389 billion in imports (2018), according to a calculation by financial agency bloomberg. It is besides a small economic stimulus program. By dropping import costs, china’s government aims to ease the burden on consumers, boosting domestic demand. The reduction in tariffs will also benefit the chinese high-tech industry – another desired side effect.

Because china’s economy is not exactly running smoothly. The slowdown in trade due to the trade dispute and home-grown problems such as the high level of debt have caused growth to fall by just over six percent in the past year, the lowest level in almost three decades. While the growth target for 2019 was still "6.0 to 6.5 percent," experts expect the government to reduce the target to only "around 6 percent" for the new year.

Despite the partial agreement with the u.S., the problems caused by the trade war are far from solved. It is not even possible to speak of a ceasefire, since a large part of the penalties will continue to be levied. Agreement on the first phase is to be signed in early january – but all experts agree that the second phase will be rather more difficult.

Also, problems in implementing the initial resolutions can greatly disrupt further negotiations – for example, by imposing new criminal penalties. "The second phase will be substantial and challenging," expects CCG researcher he weiwen. The USA also wants to address structural problems such as government subsidies in china. "The problems that lie ahead of us can become very complicated."

In any case, the problems between the U.S. And china are "strategic and long-term," the researcher said. There are other, non-economic factors, such as the dispute over china’s treatment of the uyghur muslim minority or the protests in hong kong, that are causing tension between the two rivals.