China increased its retaliatory tariffs hitting US exports on June 1 in response to President Donald Trump’s latest escalation of his trade war. Yet, this action is only half of the bad news for US exporters. The other half is that China has begun rolling out the red carpet for the rest of the world. Everyone else is enjoying much improved access to China’s 1.4 billion consumers, a fact that has been little noticed or reported in accounts of the US-China economic confrontation.
While Trump shows other countries nothing but his tariff stick, China has been offering carrots. Beijing has repeatedly cut its duties on imports from America’s commercial rivals, including Canada, Japan, and Germany.
Trump’s provocations and China’s two-pronged response mean American companies and workers now are at a considerable cost disadvantage relative to both Chinese firms and firms in third countries. The result is one more eerie parallel to the conditions US exporters faced in the 1930s.
Another important implication of China’s action is that Americans are likely suffering more than President Trump thinks due to his trade war. Inflicting such punishment on Americans may be one factor motivating China. A separate motivation may be that it is trying to minimize the harm to its own economy by importing vital goods at better prices from other parts of the world.
CHINESE TARIFFS THROUGHOUT THE TRADE WAR
China has increased tariffs on US exports to an average 20.7 percent. But also striking for American farmers, companies, and workers is that China has reduced tariffs on competing products imported from everyone else to an average of only 6.7 percent (figure 1).
As recently as early 2018, firms in both the United States and the rest of the world competed in China with each other on a level playing field, facing an average Chinese tariff of 8.0 percent. Figure 1 summarizes how the Chinese tariff differential has arisen over the course of Trump’s trade war.
On April 2, 2018, China retaliated against US exports in response to Trump imposing tariffs on steel and aluminum imports under Section 232 of the Trade Expansion Act of 1962. Without waiting for authorization from the World Trade Organization (WTO), China imposed new duties on $3.0 billion of US exports. Like all of the retaliatory duties to date, the April tariffs were imposed in addition to the normally applied most favored nation (MFN) tariffs. As a result, China’s average tariff on US exports increased to 8.4 percent.
Later in 2018, China’s retaliation against $110 billion of US exports increased the average Chinese tariff on US-based production ultimately to 18.3 percent. This hike came in three waves, and each was an immediate response to Trump imposing a round of tariffs on China under Section 301 of the Trade Act of 1974. China’s retaliatory tariffs hit $34 billion and $16 billion of US exports on July 6 and August 23, respectively. More duties covered an additional $60 billion of US exports on September 24.
Yet, throughout 2018, China also lowered its tariffs on imports from all other WTO members. The headline involved China reducing its tariff on auto imports on July 1. But on the same day, China also cut tariffs on 1,449 other consumer goods like farm and fish products, cosmetics, clothing, and home appliances. On November 1 it reduced duties on 1,585 industrial products, including chemicals and machines.
By then, China had lowered its tariffs on imports from the rest of the world from 8.0 to 6.7 percent. Consumers in China now had another reason to switch away from American suppliers.
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