China on 23 December 2019 made an announcement that it would be reducing import tariffs on more than 850 products amidst a domestic economic slowdown and an ongoing trade war scenario with the United States of America. These tariffs will be even lower than the Most Favored Nation tariffs that the country accords to certain countries and under which till last year there were 706 products being taxed. The ministry of finance, while making the announcement stated that the products under this new tariff regimen would range from sophisticated engineering products like semiconductors devices to everyday consumables like Avocados and frozen pork.
China, the world’s foremost exporter of manufactured and semi-manufactured goods has been facing a tough time domestically with its economy slowing down and the country facing a severe shortage of a number of commodities from food items to specialist ferro metals. The slowdown, which is the highest in almost thirty years is the result of the twin impact of the cyclical slowdown effect and the trade war situation with the United States. The slowdown while impacting the country’s ability to manufacture has also reduced its imports of basic raw materials, significantly rendering to a serious contraction in its economy. The reduced tariffs will not only help it import essential food items but also some specialist raw materials and semi-manufactured products that will help it jumpstart its slowing economy.
Internally China has been facing a poor food situation as well. Last year there was a breakout of the African swine fever in China, which has decimated nearly half of the domestic supply of pork, sending prices to sky-high, similar is the problem with Avocado with the gap between demand and supply of the product widening rapidly. On the material side Ferroniobium one of the specialist metals that are used in the manufacture of high strength steel, finding applications in Oil and Gas pipelines and commercial vehicles is also in short supply in the country. The tariff on the above three commodities will be reduced to eight per cent, seven per cent and zero per cent respectively. The tariff regimen will entail a new beginning in trade co-operation between the United States and China who till now had engaged in bitter trade war bickering many times in the past.
The United States for long has accused China of adopting regressive trade policies towards it. Amongst the major accusations being levelled on China are the forced transfer of American technological know-how to Chinese companies and theft of intellectual property with the country, in particular, has been accumulating an ever-increasing trade deficit with China on this account and has been desperate to fill the gap. China is today the worlds cheapest manufacturing base a fact which it has been vociferously promoting around the world to attract investments and in the process has become the world’s largest consumer of basic raw materials, thereby producing cheap basic and intermediate products and exporting the same to the rest of the world. Manufacturers in the United States of America and the rest of the world have been regressively impacted on account of these cheap and often low-quality imports and have been liaising with their respective governments to take corrective measures to protect local businesses. In response to this call from local industries the United States has time and again adopted an aggressive stance against China, with the last salvo of tariffs being targeted at a time when it will impact China the most. This tariff and counter tariff war between the two nations has not only damaged China and United States trade relations to a great extent but has also been having a detrimental effect on the diplomatic relations between the two countries.
The world economy has also been significantly impacted by this trade war situation between the world’s largest and the second-largest economy. The situation has not only depressed business sentiments across the world as both of these countries are the largest consumers of basic commodities as well as the largest markets for semi-finished and finished goods but a weakness in the demand, supply and a tweak in trade tariffs between these two countries clearly disrupts the demand-supply equilibrium of the entire world economy. This trade war situation is not only impacting commodity markets across the world but is also having a cascading impact on the world currency and equity markets. The International Monetary Fund in its world economic forecast report published in 2019 has painted a not so encouraging picture of the world economy and has held China-United States trade war a major factor resulting in the same.
However, some respite on this situation was seen towards the second half of 2019 with both countries engaging in trade negotiations to sort out these mutually destructive stances. There have been signs of subsiding tensions between two of the largest economies as continued engagement on the highest levels of talks with their respective heads of government giving slow but encouraging results by 11 October 2019, the Trump administration made an announcement that it has reached an understanding with its Chinese counterparts, with the American side agreeing to drop certain tariffs imposed on Chinese goods that were set to go online by the end of October in exchange for the Chinese side agreeing to buy increased amount of American farm goods along with allowing American financial firms getting greater access to the Chinese markets.
The current tariff reduction from Chinese side is a step-in consonance with its agreements with the American side. The move will not only boost the volume of trade between the two countries but will also help Unites States financial institutions make greater inroads into the massive Chinese markets and also help China Jumpstart its slowing economy by providing a boost to its manufacturing sector. These mutual concessions are accorded by both countries will also have a significant impact in jump-starting the world economy which has also been under a cloud of an impending recession, with China United States trade war situation being one of the significant impacting factors.
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