CNBC: China is lowering tariffs on other countries amid trade war with the US

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Containers are stacked on a vessel at the Port of Long Beach in Long Beach, California on July 6, 2018, including some from China Shipping, a conglomerate under the direct administration of China’s State Council.

Frederic J. Brown | AFP | Getty Images

The Trump administration’s tariffs have opened the door for U.S. economic allies in China, a study shows, adding to trade-induced headaches for American businesses.

As Beijing has raised duties in response to the Trump administration’s spate of tariffs, it also lowered trade barriers for exporters around the world, according to an analysis by the Peterson Institute for International Economics. Since the start of 2018, Chinese tariffs on U.S. products have jumped to 20.7%. Over that same time frame, China has reduced tariffs on competing products from other WTO countries to an average of only 6.7%.




All countries, including the U.S., faced an average 8% tariff in China last year, according to the institute.


Peterson Institute for International Economics


“Trump’s provocations and China’s two-pronged response mean American companies and workers now are at a considerable disadvantage relative to both Chinese firms and firms in third countries,” Chad Brown, a senior fellow at the Peterson Institute, said in the report. “China has begun rolling out the red carpet for the rest of the world. Everyone else is enjoying much improved access to [the country’s] 1.4 billion consumers.”

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Put another way, American products have become pricier for Chinese buyers while goods from other countries are less expensive. On average, in China, it is now 14% cheaper to buy something from Canada, Japan, Brazil or Europe than it is to buy from the U.S. While recent reports document how Indonesia, Bangladesh and Vietnam have stepped in to fill the void in American supply chains, the Peterson analysis highlights how Beijing’s own policy shifts have benefited traditional U.S. economic allies.






Washington has slapped 25% tariffs on $250 billion of Chinese goods. President Donald Trump has also threatened tariffs on the remaining $300 billion worth of Chinese imports. In retaliation, Beijing has imposed duties on $60 billion in U.S. exports, just under half of what the U.S. sends to China each year.

The president and other administration officials have fiercely defended the tariff strategy, claiming that the trade war’s economic burden will ultimately fall on China’s shoulders. Commerce Secretary Wilbur Ross doubled down on Monday, telling CNBC that Trump is “perfectly happy” to impose tariffs on the remaining $300 billion of Chinese imports if the two countries fail to strike a deal.

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But U.S. companies have painted a different picture. Walmart, Target and more than 600 other companies wrote a letter last week urging the administration to resolve the dispute, warning the tariffs could cost the average family $2,000 each year and destroy 2 million U.S. jobs. The same day, retailers RH and Tommy Bahama-parent Oxford Industries said they plan to raise prices to soften the tariff impact.

And with public hearings on the new set of tariffs starting this week, the Office of the U.S. Trade Representative has reportedly been flooded with pleas from companies urging the administration to back down, saying they have few sourcing options outside of China.

The Peterson Institute’s findings could spell more bad news for U.S. exporters.

Farming, fishing in the crosshairs

The gap between Chinese tariffs facing U.S. exporters versus those in other countries is most pronounced in the farm and fishing industries. In those sectors alone, Chinese tariffs on U.S. exports have increased from an average of 21% to 42%. That level has dropped to 19% for other countries.

Among the notable divergences, according to the institute:

  • Lobster: U.S. lobster sales to China have fallen by nearly 70% since Beijing imposed a 25% retaliatory tariff in July 2018. Canada’s lobster exports, meanwhile, have nearly doubled over that period, benefiting from a 3% tariff cut. To mitigate the outsized impact on Maine’s economy, the state’s congressional delegation has requested tariff relief from the Trump administration.
  • Salmon: American exporters of Pacific salmon have seen sales decline as Japanese and U.K. businesses have stepped in to fill the void. Scottish salmon exports from the U.K. have jumped more than 40% at the start of the year, compared with the first quarter of 2018.
  • Soybeans: Chinese tariffs on U.S. soybean imports rose from 3% to 28% last July. China has since restructured its supply chain to import soybeans from Brazil and Argentina, even without reducing the existing 3% tariff on those countries.




Peterson Institute for International Economics




As a result, China’s soybean imports from the U.S. last year hit their lowest level in a decade. More recently, customs data showed that soybean imports in February fell to their lowest monthly level in four years — or 17% lower than a year ago — in part due to heavy tariffs.

American exporters of wood, paper, chemical products and electrical equipment have also been adversely impacted. Tariff rates have increased from the low-single digits to 18% to 22%.




“With the exception of autos, aircraft and pharmaceuticals, there is now a sizable difference between the tariffs facing U.S. exporters and those facing exporters elsewhere.” Brown said.

China’s calibrated strategy

But China’s calculus, at least so far, isn’t just about retaliating against the U.S. and inflicting industry-specific pain, according to the Peterson report.

Despite a slew of support measures and policy easing in recent months, data show China’s economy has struggled to get back on solid footing. China is importing specific goods at lower prices from other countries to help stem a further slowdown.




Marika Heller, director of Albright Stonebridge Group’s China practice, sees this as a smart strategy to meet China’s growing demand domestically while not turning its back on key trading partners.

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“If Japan, Germany, Canada, and other countries start to rely on China, see their tariffs go down, and view China as a good actor, they’re going to have decreased incentives to work with the U.S.,” Heller said. “Especially as the U.S. has proven to not be as reliable in keeping up their trade relationships with key allies.”

The scope of China’s tariffs on U.S. exports to date also signals a carefully calibrated response, Brown said. The duties, which cover $87.1 billion of the $154.8 billion worth of goods imported from the U.S., currently do not target aircraft, oil products, automobiles and auto parts.

Beijing officials have exercised restraint in part to ensure they have targets to retaliate in case the Trump administration broadens the fight. China has also foreshadowed it will establish a list of so-called unreliable foreign entities that present a threat to Chinese companies. State news agency Xinhua reported that Memphis, Tennessee-based FedEx could be one of the first targets.

“That could open up a ‘Pandora’s Box’ of retaliatory measures,” Heller said. “China has a lot of tools in its toolbox.”

But the choice of products and tariff levels to date also reveals China is wary of potential self-harm. Indeed, recent data show U.S. exports to China have supported nearly 2 million jobs in sectors like services, agriculture and capital goods.

Moreover, the majority of China’s manufacturing imports from the U.S. fall into sectors where there isn’t yet a domestic Chinese alternative, including wide-body aircraft. China could target the U.S. by pushing state-owned airlines to buy from Airbus instead of Boeing, but, as Brown notes, the companies would face challenges acquiring the parts needed to operate existing fleets.

China has moved to boost domestic production of higher-value goods (in industries like aviation and semiconductors) as part of its ‘Made in China 2025’ plan, but progress reports have been mixed. Heller thinks the ongoing trade tensions could push China further toward a policy of self-reliance and propel additional research to fill those gaps.

For now, Beijing has given incentives to businesses and consumers to forge new commercial ties. Even if a trade deal is reached in the next few weeks, the Chinese may not revert back to old supply chains.

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Source: cnbc.com

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