China Hit by EU Tariffs as High as 66%

By Jonathan Stearns
October 10, 2019 11:54 GMT+3 Updated on October 10, 2019

18:32 GMT+3

 EU duties as high as 66.4% counter alleged below-cost imports

 Levies mark preliminary outcome of dumping investigation

The European Union imposed tariffs as high as 66.4% on steel road wheels from
China, targeting manufacturers such as Zhejiang Jingu Co. and Xingmin Intelligent
Transportation Systems Co.
The duties punish Chinese exporters of steel wheels for vehicles including cars,
tractors and trailers for allegedly having sold them in the EU below cost, a practice
known as dumping. The European market for such wheels is worth an estimated
800 million euros ($881 million).
Dumped imports of steel road wheels from China caused “material injury” to EU-
based manufacturers of the goods, the European Commission, the 28-nation bloc’s
executive arm in Brussels, said on Thursday in the Official Journal.
The anti-dumping duties represent the preliminary outcome of a probe opened in
February on the basis of a dumping complaint by the Association of European
Wheel Manufacturers. The levies, due to take effect on Friday, will last for six
months and may be prolonged for five years.
The EU has 11 manufacturers of steel road wheels, according to the commission,
which took the unusual step of declining to identify any of them. European
producers requested anonymity “on grounds of a fear of retaliatory measures by
some of their customers,” the commission said.

The EU industry employs 3,600 people mainly in Germany, France, Spain, the
Czech Republic, Italy, Romania and Poland, the commission said in a subsequent
emailed statement about the case.

Chinese exporters’ combined share of the EU market for steel road wheels doubled
to 5.3% last year compared with 2015, the commission said in its decision
published in the Official Journal.
The rates of the provisional anti-dumping duties are 50.3% against 19 specifically
named Chinese exporters -- including Zhejiang Jingu and Xingmin Intelligent
Transportation Systems -- and 66.4% for all others.

Separately on Thursday, the commission threatened to stoke longstanding tensions

with China over steel trade by opening an inquiry into whether Chinese producers
of hot-rolled, stainless-steel sheets and coils receive market-distorting government
aid.

The probe, which also covers Indonesia and is due to last as long as 13 months,
could lead to EU anti-subsidy duties on imports of these steel products -- used for
other kinds of steel and for tubes -- from both countries. Hot-rolled, stainless-steel
sheets and coils from China, Taiwan and Indonesia face a separate threat of
European anti-dumping duties as a result of an investigation opened in August.

The EU already has anti-dumping and/or anti-subsidy levies on a range of other

products imported from China, the biggest producer of the metal with around half
the world’s output.

In a third trade development on Thursday, the commission opened a probe into

whether South Korean exporters of heavyweight thermal paper are dumping it in
the EU. That inquiry, due to last as long as 14 months, could lead to European anti-
dumping duties on the shipments from Korea.
 ECONOMICS COMMENTARY
The article mentions EU’s recent imposition of tariffs hiking up to 66.4% on Chinese

steel road wheels. The EU implements these tariffs as a trade barrier, as Brussels

suspects Chinese producers selling their goods at a price lower than costs of

production. Thereof, EU wants to protect domestic producers and make imports from

China less competitive.

Figure 1. Effect of Dumping of Chinese Steel Road Wheels on EU Domestic Market

Price of
Steel Road
Sdomestic
Wheels (€)

Pe

PW SWorld/China
Ddomestic

Q1 Qe Q2 Quantity of
Steel road wheels
Diagram designed in Microsoft Word Office 2016

In Figure 1, domestic equilibrium would be originally set at PeQe. However, due to

international trade, a new supply curve SWorld/China is introduced, where world and

Chinese producers are willing and able to supply at a lower price PW. This introduction

1
 leads to a disequilibrium in market: Domestic suppliers are willing and able to supply

at Q1 while quantity demanded domestically is at Q2. Therefore this excess demand

(Q2-Q1) is cleared by Chinese imports. This diminishes EU’s total revenue from PexQe

to PWxQ1 and puts “3,600” domestic producers job at risk, as Chinese exporters have

a comparative advantage over EU producers at producing steel road wheels, ceteris

paribus. Because of this disadvantageous circumstance for domestic producers, EU

implemented 66.4% tariffs on Chinese imports.

Figure 2. Impact of 66.4% Tariff Imposition on EU Domestic Market

Price of A: Dead Weight Loss due

Steel Road to Inefficiency.

B: Government Revenue
Wheels (€)
C: Dead Weight Loss due

Sdomestic to Decreased Consumer

Surplus

PW+Tariff SWorld/China+Tariff

A B C 66.4% Tariff

PW SWorld/China

Ddomestic

Q1 Q3 Q4 Q2 Quantity of
Steel road wheels
Diagram designed in Microsoft Word Office 2016

2
The imposition of 66.4% tariff shifts world supply curve upwards, from SWorld/China to

SWorld/China+Tariff. Thereby, actual market price increases from PW to PW+Tariff; where

domestic producers are willing and able to supply at larger quantity Q3, but quantity

demanded contract to Q4 as domestic consumers suffer from higher prices. Since

excess demand reduces, the imports also reduce to Q4-Q3. Consequently, domestic

producers get hold of a larger share in an “$881 million” market, their revenue

increases from PWxQ1 to PW+TariffxQ3. Additionally, EU achieves major macroeconomic

goals with these tariffs in short run: The increase in production requires larger

workforce and therefore decreases structural unemployment, the tariff revenue (area

B, Figure 2) gained by EU improves fiscal budget, and the decrease in imports leads

to a smaller trade deficit (X-M) and therefore to a more balanced current account.

However, there exists long-term disadvantages. As area A in Figure 2 illustrates, there

is deadweight loss caused by inefficiency and ineffectiveness of the comparatively

disadvantaged domestic producers, and therefore there is a misallocation of scarce

resources. Moreover, EU producers may become more inefficient in a “5-year” span,

as the tariff decreases competitiveness and rivalry within the market and leads to

diminished incentive for domestic producers to invest in R&D and technology, since

they gain an artificial advantage with tariff.

The deadweight loss (area C, Figure 2) is also caused by a decreased social surplus,

where consumers pay a higher proportion of their disposable income for purchasing

the same good. This leads to market distortion, as prices within a market increase,

consumer choices become limited and consumer surplus decrease. Furthermore,

because the tariff is a regressive measure, low-income households suffer greater as

they spend relatively larger proportion of their income.

3
 Article mentions that other “steel products” will also be subject to tariffs, which will

subsequently increase PPI for steel-related products and inevitably CPI: The distortion

will cause increased prices over a range of industries and therefore will lead to cost-

push inflation. In the long run, the inflation, acting as a hysteresis effect, will decrease

Euro(€)’s real value.

Additionally, this may lead to serious retaliation from China, where China imposes

protective measures against EU. In an event of escalation, this decreases EU’s gain

in trade and leads to mutual damage to trade position of both countries. As an

alternative, EU may reside to a trade subsidy:

Figure 3. Effect of Subsidizing Domestic Suppliers on EU Steel Road Wheels Market

Price of : Government
Steel Road Spending

Wheels (€) A: Dead Weight Loss

Sdomestic
Sdomestic+Subsidy

PW+Subsidy

A
PW SWorld/China
Ddomestic

Q1 Q3 Q2 Quantity of
Steel road wheels
Diagram designed in Microsoft Word Office 2016

4
Introduction of subsidy shifts the domestic supply curve rightwards, from Sdomestic to

Sdomestic+Subsidy. This way, domestic producers supply at a higher Q3, and imports shrink

from Q2-Q1 to Q2-Q3. Although subsidizing is another form of safety net that may lead

to deadweight loss due to misallocation of resources(area A, Figure 3), and may

further increase inefficiency in the market, the price PW stays the same and therefore

consumer surplus remains unchanged. However, this comes as opportunity cost, as

the government has to devote a part of fiscal budget for this subsidy.

To conclude, EU has to take action to prevent “dumping” and protect domestic

producers from “material injury”. Imposition of tariff has advantages of meeting multiple

macroeconomic objectives, such as improved trade balance, economic growth and

higher employment. However, as with any protective measure, this move carries risk

of escalating retaliation that may lead to worsened trade position, and also leads to

decreased social surplus and decreased efficiency in domestic market. Therefore,

encouraging free trade is a better option, as in the long run, it will increase the social

surplus, provide competitiveness and productive rivalry.

Word Count: 750

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References
Stearns, J. (2019, October 10). China Hit by EU Tariffs as High as 66%. Retrieved from

Bloomberg: https://www.bloomberg.com/news/articles/2019-10-10/china-hit-

by-european-union-tariffs-on-steel-road-wheels