China's Coming Reductions in Import Barriers: A Short-Term or Long-Term Change?

by: Howard Richman

According to the People's Daily (China considers tariff reduction to boost imports), the Chinese government is considering some cuts in its many tariff and non-tariff barriers to imports. Here is a selection:

Import tariffs will be reduced on a range of products and red tape involved in import application procedures will be further cut, to "maintain balanced trade," a senior official told China Daily.

"We will launch a series of measures to stimulate imports this year, including adjusting tariffs on some categories of goods and further simplifying the administrative process," Zhong Shan, vice minister of commerce, told China Daily on the sidelines of the East China Fair, which opened in Shanghai on Tuesday.

Zhong declined to elaborate on the exact measures that will be introduced.

Huo Jianguo, director of the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce, said import tariffs on resources are comparatively low, but the government could consider reducing tariffs on high-tech goods.

The ministry said at the December conference that China will issue guidelines to promote imports of mechanical and electrical products, especially those related to new energy, energy saving, high-end manufacturing, low-carbon technology, aerospace, shipbuilding and railways.

There are two possibilities:

  1. Long-term change in Chinese policy. China is gradually giving up its successful mercantilist strategy of maximizing exports and minimizing imports. This strategy is successfully building up China's economic and political power while destroying the economic and political power of its rivals in the West and Japan.
  2. Short-term change in Chinese policy. China is temporarily reducing its trade manipulations as an inflation fighting measure. China's current inflation is partly caused by the People's Bank of China printing yuan for use buying foreign currencies, so that China can maintain its trade surpluses.

I suspect that this is just a short-term change. China is not talking about sweeping changes, just some tinkering around the edges. The Chinese government keeps out U.S. products through a wide variety of pretexts. Some of them are WTO-legal, including:

  • Exclusion of American products from government catalogs. The Chinese government publishes catalogs which specify the products that may be purchased by its huge government controlled sector. These catalogs routinely exclude American products.
  • Manipulation of dollar-yuan exchange rate. The People's Bank of China manipulates the dollar-yuan exchange rate to keep American products high priced relative to Chinese products. These manipulations make Chinese products more competitive and U.S. products less competitive in world markets, including those in China and the United States.
  • High Tariff Rates.China imposes high tariffs (about 25%) on a wide variety of U.S. products including cars, trucks, motorcycles, textiles, raisins and mining machinery.

Some violate WTO rules, according to the 2010 Report to Congress on China's WTO Compliance published by the United States Trade Office. These include:

  • Continuing piracy of intellectual property. "Despite repeated anti-piracy campaigns in China and an increasing number of civil IPR cases in Chinese courts, counterfeiting and piracy remain at unacceptably high levels and continue to cause serious harm to U.S. businesses across many sectors of the economy."
  • Increasing requirement that U.S. R&D be moved to China. "In 2010, policies aimed at promoting 'indigenous innovation' became an important component of China’s efforts. For example, China began to link government procurement and other preferences to discriminatory criteria, such as the possession of intellectual property owned or developed in China.
  • Increasing restrictions on Rare Earth exports. "As in prior years, China continued to deploy export quotas, export license restrictions, minimum export prices, export duties and other export restraints on a number of raw material inputs where it holds the advantage of being one of the world’s leading producers. Through these export restraints, it appears that China is able to provide substantial artificial advantages, both in China’s market and other markets around the world, to a wide range of downstream producers in China."
  • Regulatory restrictions on U.S. agricultural products. "In 2010, the principal targets of worrisome practices by China’s regulatory authorities were poultry, pork and beef products, where anticipated growth in U.S. exports of these products was again not realized. In particular, China continued to block the importation of U.S. beef and beef products, well over three years after these products had been declared safe to trade under international scientific guidelines."

Whether the change is long-term or short-term, an improving trade balance for the United States with China would be very good for the U.S. economy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.