After a phase one trade deal with the US, China said on Monday that it would slash import tariffs on a wide range of goods from around the world to boost domestic consumption. As Bloomberg reported, the Ministry of Finance published a list outlining 859 products that will be subjected to lower tariffs, some of those items include food, consumer goods, and high-tech parts for electronics.
One of the most critical items on the list is pork, which will be imported in more significant amounts come early January to lower domestic spot prices that have hyperinflated in late 2019. Increasing pork imports will also allow the government to rebuild the pork cold storage inventory that was depleted thanks to the outbreak of African swine fever that decimated the country's pig herds.
The list also includes pharmaceutical ingredients, avocados, orange juice, and seafood, as China's middle-class, some of the wealthiest in the world, demand more expensive products.
Bloomberg notes that 2018 imports of the listed items were about $389 billion, or about 18% of China's total imports of $2.14 trillion. And since tariffs are merely a tax on its consumers, what Beijing has just done is stimulate domestic consumption for an economy where GDP is set to hit a new sub 6% record soon.
That said, China will likely spin the tariff cuts as "generous concessions" to the US, but as we've explained before, China isn't going to source from the US entirely. Chinese importers will gravitate to areas of the world where products are the most affordable. For example, Chinese importers of farm products ditched US farmers for ones in South America because of the exchange rate and lower spot prices on soybean and pork.
Translation: China cutting tariffs on stuff it desperately needs, will try to spin it as concession toward US https://t.co/dfcXgU7GRZ— zerohedge (@zerohedge) December 23, 2019
"The move in lowering import tariffs reflects that the government wants to reaffirm its stance to the world on freer trade amid the trade war," said Gary Ng, an economist at Natixis in Hong Kong. "Domestically, lowering import tariffs are helpful in reducing business and consumer costs."
Monday's tariff cuts hint that China's economy continues to decelerate rapidly, and the government is scrambling to boost domestic consumption. And while China will try to use the tariff reduction as ammo to push the US for tariff cuts of its own, there's little evidence that Chinese importers will source the new imports from the US.