Trump trade war, China tariff: Beijing tariff cut means they’re in it for long haul

Chinese president Xi
Jinping
Reuters/Pool

• China announced that it would cut tariffs on roughly 1,500
  goods starting November 1.
• The move comes days after the latest round of tariffs in the
  US-China trade war went into effect.
• China’s tariffs cut shows that the government is settling in
  for a protracted trade war with President Donald Trump and the
  US.
• The tariff cut will decrease inflationary pressures on
  Chinese consumers and help to build relationships with
  non-American suppliers.

China’s government announced Wednesday that the country will
cut import tariffs on a slew of goods, in an effort to lessen the
impact of the trade war with the US.

Duties on textiles, construction equipment, and more than 1,500
other goods will drop on November 1, according to the Chinese
government. According to Chinese state media, the move is
expected to save consumers in the country 60 billion yuan, or
roughly $8.7 billion.

The move also shows that the Chinese government is digging in and

expects the trade war with the US to last for the foreseeable
future.

All indications have pointed to a protracted trade war, as

China canceled talks following
President Donald Trump’s latest round of tariffs and the

US is already threatening another round of
restrictions.

But 
Wednesday’s move also shows that
Beijing is also trying to tweak economic conditions in the
country to weather a protracted fight, said Edward Alden, a
senior fellow at the Council on Foreign Relations.

“Cutting tariffs makes a lot of sense,” Alden said. “If
you’re worried about strengthening China’s position in the supply
chain, if you cut tariffs — especially on intermediate goods —
that helps the competitiveness of company’s within China and it
helps keep down consumer costs at a time the tariff war is
driving them up.”

Essentially cutting tariffs for non-US goods will act as a
release valve for some of the pressure from the trade war.
Businesses and consumers in China won’t see as dramatic of an
increase in the cost of goods, which decreases public pressure on
the government to come to an agreement with the US.

Additionally, the cut is likely to increase pain on US
manufacturers as Chinese consumers shift away from more expensive
American goods toward cheaper alternatives from other countries.
Scott Kennedy, a Chinese economic expert at the Center
for Strategic and International Studies, said this means gains
from the cut will go to non-US firms.

“In principle these tariff cuts should apply to all
imports, including those from the United States,” Kennedy told
Business Insider. “But China is still likely to leave in place
its retaliatory tariffs, meaning the benefits of these tariff
cuts will go to other countries.”

Already Chinese
producers are turning to
non-American sources for their needs and the combination of
higher tariffs on US goods and lower duties on other goods will
likely speed up that shift.

Alden says this is also part of China’s long-term strategy. By
building relationships with other countries, China can grow its
economic influence around the world and wean itself off of an
economic reliance with the US.

“Those tariff cuts are mostly going to benefit competitors
of the US and that helps China build goodwill elsewhere,” he
said.

In July, China announced cuts to
tariffs on cars and other goods such as apparel and
appliances. In all, Reuters estimated that
China’s average tariff level will drop to 7.5% in 2018 form
9.8% in 2017.
 

Kennedy said that while the move does give a small boost to
imports that should help other countries, it does not signal a
broad shift in Chinese economic policy.

“The most important barriers to imports and foreign
investment are non-tariff barriers,” Kennedy said. “No one should
see this announcement as a turn away from industrial policy and
the dominant focus on supporting domestic Chinese
companies.”