What Tariffs are China Saving in the US – and Why are They Significant?
President Donald Trump has been engaged in a trade war with China, imposing tariffs on billions of dollars’ worth of Chinese goods coming into the US. While China has retaliated with its own tariffs on American exports, there is a concern that China’s economy is now benefiting from reduced costs. A closer look reveals that China has indeed been enjoying significant savings through the US trade tariffs.
In September 2018, China imposed tariffs ranging from 10% to 25% on $200 billion worth of American goods, following the US initiation of tariffs on $50 billion worth of Chinese goods. Although the tariffs targeted a wide range of products, including electronics, machinery, and automotive parts, China has effectively used these levies to divert imports to its own manufacturers. This strategy aims to increase demand for domestically-produced goods and shore up the fragile Chinese economy, which has experienced slowing growth over the past several years.
Here are some figures that highlight China’s gains from the tariffs:
- Steel and aluminum imports: Chinese steel and aluminum imports into the US, mostly from South Korean and Japanese smelters, jumped by 65% and 33%, respectively, in August 2018, shortly after the US steel and aluminum tariffs took effect.
- Automotive exports: China increased its exports to the US, including passenger and commercial vehicles, by 42% in Q2 2019 compared to the same period in 2018.
- Food and beverages: China has experienced a surge in food and beverages imports from Brazil, Argentina, and other South American countries since the tariffs have been in effect.
- Machinery and electronics: Chinese manufacturers are also benefiting from increased imports from other countries such as Vietnam and Indonesia, especially in the automotive and electronics sectors.
Why are these savings significant? The current trade dynamics could have far-reaching implications for international trade and globalization. Here are a few points to consider:
- Trade diversion: By diverting imports to local manufacturers, China is exploiting trade tensions to achieve its strategic economic goals. If other countries replicate this approach, global trade would become increasingly unpredictable and complex.
- Supply chain adaptations: The need to find new suppliers and revise supply chains has already led some US companies, such as automobile manufacturers, to reconsider their long-term investment in China.
- Tightening ties with other regions: China might strengthen its relations with other developing regions, leveraging their growth opportunities to compensate for potential losses due to US sanctions.
- Escaping the middle income trap: If China can reduce its dependence on the US market and foster robust domestic consumption and production, the country might mitigate the risk of getting stuck in the "middle income trap".
In conclusion, China has, indeed, enjoyed significant savings in the US amid the ongoing trade tensions. China’s efforts to redirect imports through other countries might not only limit the economic gains from trade talks but also underscore the complexity of the global economic landscape. A nuanced understanding of these developments highlights the importance of cooperation, bilateral agreements, and long-term commitments to sustainable globalization.
