The country’s Ministry of Finance said Thursday that starting on Feb. 14, it would cut tariffs on certain U.S. imports from 10 percent to 5 percent, and bring duties on other items down from 5 percent to 2.5 percent. The tariffs were initially implemented as part of the back-and-forth battle between the two powerhouse economies as they looked to negotiate a trade deal.
Thursday’s move to slash the tariffs are an effort to “alleviate economic and trade frictions and expand economic and trade cooperation” with the U.S., The Wall Street Journal reported China’s Finance Ministry as saying.
As part of a phase one trade deal signed on Jan. 15, the U.S. also agreed to curb tariffs on some China-originating goods, eliminating a slated December set (list 4B), and halving the tariff rate on list 4A goods to 7.5 percent. For the apparel and textiles sector, the relief was nominal, as 92 percent of the apparel originally targeted in the trade war, according to the American Apparel & Footwear Association (AAFA), is still facing tariffs. Tranche 3 tariffs, for one, are still in effect, plaguing thread, yarn, textiles and handbags with the punitive duties.
Though the phase one deal has been signed and negotiations for a phase two deal were supposed to follow closely behind, doubts have arisen as to whether China would be able to come through on commitments made in the first deal—particularly now that it’s battling an escalating health crisis.
Stipulations in the initial trade deal include promises on China’s part to boost agriculture buys by at least $200 billion, as well as ramping up purchases of American goods and services. Thursday’s move may be part of China’s plan to get there, according to Nelson Dong, senior partner at international law firm Dorsey & Whitney.
“Since tariffs automatically increase the cost of imported goods (in this case, into China), it would be inherently contradictory public policy to want more Chinese purchasers to buy American products and yet at the same time to make them more expensive than necessary because of such tariffs,” he said. “However, even with these tariff reductions, there are still many skeptics who believe China will have significant difficulty reaching those Phase One goals.”
For one, focusing on imports of any additional goods at present proves problematic because the coronavirus outbreak has significant portions of the country under lockdown, goods piling up at ports, and workers—including truckers who would handle goods movement in the country—warned off from returning to work in the hopes of minimizing further spread of the virus, which, as of Thursday morning, has infected 28,060 people in China and killed 564, according to World Health Organization director general Dr. Tedros Adhanom Ghebreyesus.
“The coronavirus problem is already widely expected to hurt China’s domestic economy,” Dong said. “Tens of millions of Chinese workers have been ordered to stay home on an extended Lunar New Year break in an effort to reduce the risk of human-to-human transmission of the disease. Their lost hours of work will be significant in the aggregate and will clearly lower national productivity in 2020 and thus lower corporate revenues and earnings.”
As such, China’s phase one deal commitments will be challenged to say the least, which further threatens the potential for a phase two deal anytime soon, though U.S. Treasure Secretary Steven Mnuchin told reporters Thursday that he and U.S. Trade Representative Robert Lighthizer will be traveling to China next week to continue talks.
“When all of these adversely affected Chinese companies tally up those losses, that will likely lead to tightened budgets that will lead in turn to lowered purchases, especially of relatively more expensive imported goods,” Dong said. “
Thus, if China hopes to have any chance of meeting its phase one agreement import commitments, it has to adjust for those economic headwinds,” he added, “and so these tariff reductions are probably calculated to reinforce the government’s recent injection of more liquidity into the Chinese financial system.”