Internal Assessment Economics

Title of the article: China to adjust trade tariffs on some goods from Jan 1

Source of the article: China to adjust trade tariffs on some goods from Jan 1 |
Reuters, Reuters

Date the article was published: December 29, 2022

Date the article was accessed: January 114, 2023

Date the commentary was written:

Word count of the commentary:

Unit of the syllabus to which the article relates: global economics

Key concept being used: intervention

BEIJING (Reuters) - China will adjust import and export tariffs on
some goods from January 1, in order to speed and promote
development and expand domestic demand, the finance ministry said
on Thursday.

Export tariffs on aluminium and aluminium alloys are to be raised, the

ministry said in a statement, citing the tariff commission of China’s
state council, or cabinet.

The current import tariff will stay on seven types of coal until March
31 next year, with tariffs adopted for most favoured nations from
April 1, the finance ministry said in a separate statement.

As the world’s second biggest economy battles a surge in COVID-19

infections after Beijing’s abrupt U-turn on stringent curbs, it will set
tariffs to zero on ingredients of some anti-COVID drugs, so as to ease
the financial burden on patients.

Domestic hospitals and funeral homes faced intense pressure as the

surge drained resources.

Policymakers have pledged steps to expand domestic demand and

prioritise a recovery in consumption in the face of pressure from
shrinking demand, supply shocks and weakening expectations,
according to the annual Central Economic Work Conference.

To meet shoppers’ demands, import tariffs will be further lowered on

coffee makers and juice extractors, the tariff commission said.

As competition grows with the United States on technology issues,

China has decided to further reduce the tariffs for most favoured
nations on 62 types of information technology products from July 1
next year.

That step will cut China’s overall tariffs to 7.3% from 7.4%.
Commentary

In economics, intervention typically refers to government intervention, meaning that the

government becomes involved in the working of markets. Usually it occurs when markets cannot
achieve goals of society, such as equity, sustainability, economic well-being or efficiency. In this
came, I this commentary will be discussed changes in Chinese trade protection, namely, import and
export taxes. Trade protection involves government intervention in international trade through the
imposition of trade restrictions. Tariffs are taxes imposed on imported or exported goods and are the
most common form of trade restrictions.

The first government intervention underwent by Chinese economy is increase in export tariffs on
aluminum and aluminum alloys.

Demand and supply of aluminium with Chinese export tariffs

Sd
and aluminum alloys

d
Price of aluminum

Pw
a
Pw+t1
b c e g
d f h
Pw+t2
Pd

Dd
Q1 Q2 Q3 Q4 Q5 Q6 Quantity of aluminum and
aluminum alloys

The effect of an increase in Chinese export tariff is shown on the graph. Since China is a large
exporter of aluminium change in the export tariff will cause a decrease in the price on the domestic
market and an increase in the price in the rest of the world. With the initial tariff, price for aluminium
was Pw+t1. With this price China used to sell quantity Q2 on the domestic market and export
quantity Q5-Q2. After the tariff was increased price of aluminium on the Chinese market drops to
Pw+t2. As a consequence, quantity sold on the domestic marked increases to Q3, quantity exported
decreases to Q4-Q3.

Change in the tariff also impacts consumers, producers, and government. Consumer surplus raises by
(b + c + d), whereas producer surplus falls by – (b + c + d), government revenue increase by f. The
welfare loss equals to (e + g).

The second intervention discussed in the article is that China set tariffs on ingredients of some anti-
COVID drugs to zero.
 Demand and supply of anti-COVID medicines without import tariff

Price of anti-COVID
Sd
d

medicines
Pd
Pw+t
a c
b d
Pw

Dd
Q1 Q2 Q3 Q4 Quantity of anti-COVID
medicines

When the import tariff is no longer in work, the distribution of anti-COVID drugs on domestic Chinese
market experiences some changes, they are shown on the graph.

Domestic producers are worse off in this situation because quantity of goods they sell decreases from
Q2 to Q1 and moreover they receive a lover price Pw, instead of Pw+t. Therefore, producer surplus
decreases by the area a. Consumers are better off because now they pay lower price for the anti-
COVID pills; consumer surplus increased by area (a + b + c +d). After cancelation of the intervention,
government stops getting any revenue, before it received the amount which equals to area c.

Another important concept which is better off is global efficiency and allocation of resources.
Efficiency refers the best possible use of scarce resources to avoid resource waste. Since with tariff
more efficient producers can sell less, it causes inefficiency and misallocation of resources. That is
why when it is called off, global economy wins. Moreover, there is no more welfare loss, before it
equaled to (b + d).

There are two more decisions Chinese government made concerning tariffs: lowering import tariffs
on coffee makers and juice extractors and on information technology products. Domestic consumers
will be better off them and domestic producers will be worse off.

In general, Chinese tariffs’ rate will decrease from 7.4% to 7.3%. Decrease in government
intervention in the free market will help the international trade between China and other countries
to develop. Moreover, the competition between producers will be raised, as well as the efficiency of
production. However, Chinese revenue will fall, export aluminium taxes can help government to gain
the amount which was lost form tariffs decrease or cancelation. Another significant benefit is future
possible fall in COVID healthcare treatment. After the start of pandemic China has spent more than
$52 billion and if citizens get access to cheaper medicines they will also have higher chance to not get
COVID. It might be the best possible option out of interventions China had.

In conclusion, all of the changes Chinese government has made are aiming to increase competition
on the Chinese market and therefore on the global market. In the future perspective they can bring
China and its trading partners advantages, whereas their citizens’ level of life will increase with more
affordable goods and services.