China announced it would cut import tariffs on 1,585 items from November 1, China National Radio reports, citing a State Council meeting chaired by Premier Li Keqiang. The tariff cuts involve machinery, textile, building material, paper products and electromechanical device and would lower costs for consumers and companies as a trade war with the U.S. deepens.
The overall tariff rate will be lowered to 7.5% from last year’s 9.8%, and the cuts are expected to reduce tax burdens for companies and consumers. The move follows on from similar cuts announced in July, and is a step with China’s pledge to support more imports.
It’s not yet clear how the planned reduction would affect imports from the U.S., if at all, including Chinese retaliatory tariffs on American products amid the trade war. Those details may only emerge once the government outlines which products will enjoy lower tariffs. Any reduction of tariffs usually must be offered to all countries equally under World Trade Organization rules.
Commenting on the previous import tariff cut news, Nicholas Lardy, a China expert at the Peterson Institute for International Economics in Washington said that “this is in line with China’s longstanding strategy of opening. It has the additional advantage that it will make U.S. firms complain more loudly that Trump’s strategy is blocking their access to the China market.”
“The timing of the cut would suggest the tariff tool is being used as a tactic in the trade war, taking into account both domestic and international considerations” said Bloomberg economist Chang Shu who adds that cuts across most trading partners, including the U.S., “would signal an effort by China to ease tensions.”
“By further cutting import taxes, China is sending a message that it will keep opening up and reform no matter how the trade war goes. It’s more like a commitment to both domestic and international audience. It’s a gesture,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp.
According to Bloomberg, China’s most-favored nation average tariff stands at 9.8%. The MFN rule requires all countries to be treated equally unless specific exceptions are agreed, and the U.S. is also covered by MFN status.
China still has a higher average tariff rate than many developed economies. The U.S.’ average applied MFN rate was 3.4 percent in 2017, and in general the Trump administration has accused China of being a protectionist economy. On Wednesday, Premier Li said that his government wouldn’t devalue the currency in order to boost its exports amid the trade war.
Cutting tariffs is just a start for China in addressing its unfair trading practices, said Dan DiMicco, the former Nucor Corp. chief executive officer who led Trump’s trade team during the transition.
“I see this as a result of Trump’s counter attack to China’s trade war of the last 24 years,” DiMicco said by phone. “Chinese tariffs have never been the crutch of the trade problem with them,” he said, citing China’s alleged theft of intellectual property and state-controls over the economy as deeper issues. “The world gets that and won’t be swayed by this tokenism.”