As part of China's efforts to open its economy - something its leaders have been touting at least since President Xi's keynote speech at the 2017 World Economic Forum - Xi revealed on Monday a detailed breakdown of what will be the third round of tariff reductions this year, measures that were teased by President Xi during a speech nearly two months ago.
The plans to spend more on foreign goods are part of China's plan to import an additional $30 trillion over the next 15 years as the world's second-largest economy continues its transition from an industrial powerhouse to a service-focused economy, according to Bloomberg.
In addition to the $30 trillion in goods (which is higher than the $24 trillion previously promised by Xi), China is also hoping to increase services imports by $10 trillion during the same period. The measures come as China is weighing whether to abandon its "Made in China 2025" initiative and speed up the liberalization of its economy and its openness to foreign competition as a means of reducing wasteful state-directed spending that has heavily contributed to the massive pile of bad debt swirling around China's corporate sector.
The tariffs will have the added bonus of cutting costs for Chinese consumers at a time when a dramatically weaker yuan is expected to stoke inflation. The announcement follows a raft of disappointing economic data released earlier this month raised fears of a global recession (and sent stocks around the world tumbling lower).
Before Trump takes credit for the cuts as another victory in his trade war with China, Bloomberg pointed out that Xi's latest comments "don't move the needle very far on trade policy". China has already cut tariffs this year (case in point: the recent reductions in auto tariffs) and has repeatedly said it's planning more cuts.
The lowered tariffs, which will impact some 700 goods, will take effect on Jan. 1. The "temporary" rates can be changed at will and also can be lower than the current most-favored nations levels, though these tariffs will also apply to goods imported from all WTO members.
Here's a breakdown of the tariff highlights courtesy of Bloomberg.
- With tariffs on U.S. soybeans stopping a key source of edible meal (often used for animal feed), China will implement zero tariffs on imports of a variety of meals including sunflower and canola.
- Some materials for pharmaceutical manufacturing will also be subject to zero tariffs, and taxes on high-tech imports will be set "relatively low," including at 1 percent for a type of generator for aircraft, and 5 percent for a type of welding robots used in car assembly lines.
- The ministry said MFN tariffs will be further cut for a wide-range of information technology imports starting from July 1, 2019, including for medical diagnosis machines, speakers and printers, according to a separate table on its website.
- The nation will also scrap export tariffs on 94 items of products starting from the new year, including fertilizers, iron ore, coal tar, and wood pulp. Export tariffs on these goods are as high as 40 percent currently.
- Imports from nations that have reached a trade pact with China will be levied at the rates agreed by both sides. China’s bilateral deals with New Zealand, Peru, Costa Rica, Switzerland, Iceland, South Korea, Australia, Georgia already included promises to further lower tariffs in 2019, as does the Asia-Pacific Trade Agreement.
- Imports from Hong Kong, Macau will also enjoy lower taxes.
China's stated plans to liberalize its economy could help improve the chances for an enduring trade pact with the US, as one of Trump's central demands is that the Communist Party take steps to narrow China's trade surplus with the US. Then again, China has a long and storied history of promising to open up its markets - a process which created holes in its storied captial account firewall; whether it actually follows up on them has been a different matter entirely.