Howard Richman's  Instablog

The latest statistics released on March 18 by the BEA show that for every $1 that the United States bought from China in 2009, the Chinese government only let its people buy 28¢ of American products. Although the Chinese economy was growing by 8.7%, the Chinese government managed to shrink Chinese imports of American goods and services.

The 2010 National Trade Estimate (NTE) released on March 31 by the Office of the United States Trade Representative explains how the Chinese government kept out American products. Although the report ignored China's currency manipulations, which raise the cost of all American goods and services in China by somewhere between 25-40%, it still found plenty to talk about. Currency exchange rate manipulation is only one of the many ways that the Chinese government keeps out American products. The report focused upon the Chinese government's expert use of tariff and non-tariff barriers.

Tariffs

The Chinese government imposes high tariffs upon many American products. The report states:

China still maintains high duties on some products that compete with sensitive domestic industries. For example, the tariff on large motorcycles is 30 percent. Likewise, most video, digital video, and audio recorders and players still face duties of approximately 30 percent. Raisins face duties of 35 percent. (p. 60)

Selective Use of VAT

According to the report, China makes selective use of its Value-Added Tax to keep out American phosphate fertilizer:

In 2001, China began exempting all phosphate fertilizers except diammonium phosphate (DAP) from the VAT. DAP, a product that the United States exports to China, competes with other phosphate fertilizers produced in China, particularly monoammonium phosphate. (p. 60)

Procurement Directives

The report points out that China makes use of procurement directives to keep out American telecommunication equipment:

There have been continuing reports of the Ministry of Industry and Information Technology (MIIT) and China Telecom adopting policies to discourage the use of imported components or equipment. For example, MIIT has reportedly still not rescinded an internal circular issued in 1998 instructing telecommunications companies to buy components and equipment from domestic sources. (p. 60)

QIPs to Keep Out Agricultural Goods

The report points out that the Chinese government uses Quarantine Inspection Permits (QIPs) to keep out American agricultural products, causing costly delays while they sit on the docks:

China’s inspection and quarantine agency, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), and MOFCOM have imposed inspection-related requirements that have led to restrictions on imports of many U.S. agricultural goods....

Because of the commercial necessity to contract for commodity shipments when prices are low, combined with the inherent delays in having QIPs issued, many cargos of products such as soybeans, meat, and poultry arrive in Chinese ports without QIPs, creating delays in discharge and resulting in demurrage bills for Chinese purchasers. In addition, traders report that shipments often are closely scrutinized and are at risk for disapproval if they are considered too large in quantity.(pp. 63-64)

Restricting Market Access to Services.

America has a wide variety of financial and insurance services that American companies could market in China, but the Chinese government simply restricts market access. The report states:

China imposes restrictions in a number of services sectors that prevent or discourage foreign suppliers from gaining or further expanding market access. (p.70)

Keeping out Genuine Materials while they are Pirated

American DVD movies and PC games are quite popular in China. However, American companies rarely get any sales. The report states:

An exacerbating factor contributing to China’s poor IPR protection has been China’s maintenance of restrictions on the right to import and distribute legitimate copyright-intensive products, such as theatrical films, DVDs, music, books, newspapers, and journals. These restrictions impose burdens on legitimate, IPR-protected goods and delay their introduction into the market. These burdens and delays faced by legitimate products create advantages for infringing products and help to ensure that those infringing products continue to dominate markets within China. (p. 71)

Demanding Patents & R&D

The report briefly mentions China's most recent escalation, its November requirement that American corporations move their Research and Development and patents to China:

In order to qualify as “indigenous” innovation under the accreditation system, and therefore be entitled to procurement preferences, a product’s intellectual property must originally be registered in China. (p. 69)

In short, the United States government is letting the Chinese government practice mercantilism, the strategy of maximizing exports and minimizing imports. We freely receive Chinese imports without requiring reciprocity.

It's time to impose a tariff on Chinese goods proportional to our trade deficit with China. Such a tariff, permitted by a special WTO rule for trade-deficit countries, would finally force the Chinese government be take down its many, many barriers to American goods and services.