China reduces tariffs: the West takes us there

China announces to lower import duties on some products and Western media falls for it and celebrates it as a victory, describing the event as an important step towards greater market opening and even as a Trump’s victory. Obviously, this is not the case and the answer is, as always in the numbers, but this time and above all also in the words of the Minister of Finance who declared that the reduction of duties was decided because some quality products cannot be found in the internal market.

My considerations are of two types:  1) Real impact of such reductions 2) Rationale for this choice.

 

1)     Real impact:

  • Reduction of duties will be applied to 187 products, which represent x of the total of imported products and x of the total value of imports. Very little
  • The average reduction in duties is about 10% (from 17.3% to 7.7%), saving that will not be passed on to consumers, but it will give a bit of breathing space on the profit margins of importers / distributors / supermarkets. So no impact on imported quantities.
  • Even if this were not the case and some of the distribution chains wanted to pass savings on consumers, the price elasticity of these products is not high enough to substantially increase sales.

2) Reasons

  • The choice of reducing duties was in response to an increase in demand from Chinese consumers of products not easily available on the domestic market. These are the more or less textual words of the Minister of Finance.
  • As always, China is in charge of managing business relations with the rest of the world. This move is not dictated by a desire to make life easy for those who sell sparling water in China but to make life easy for their consumers.
  • This move could also be a way for Trump to declare a small victory over China, a step towards reducing trade deficit. As mentioned before, a lot of form and little substance, but that’s fine.

 

Below, for completeness I carry the data I consider important and which can serve as a future reference.

1) Complete list of products subject to duty reduction
2) Values and quantities of goods imported from EU countries and from America

Here is another fact-checking. It is always said that China has an export-dependent economy and it must hurry to re-balance it towards domestic consumption. This sentence is partially true: China must hurry to rebalance its own economy, but not because it depends heavily on exports, but because it is heavily dependent on investment. Between China and Italy, what is the country where the contribution of foreign trade (imports and exports) has a greater incidence on GDP? Italy, with about 60%, against 40% of China. Yet I never hear anyone say that “Italy must reduce its dependence on foreign trade.” The chart below shows the incidence of total foreign trade on the GDP of various countries and shows that France, Italy and Germany and not China are the countries with high dependence.

 

 

The following table shows a partial list of 187 goods subject to duty reduction, indicating in the last two columns the old and new duties expressed in  %

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