China to cut Tariffs on USD 75 Billion of U.S. Goods

Levies on some American products to fall to 5 % from 10 %, beginning February 14, 2020.

By guest author Lingling Wei from Wall Street Journal

China said it would slash tariffs on $75 billion of U.S. imports in half as part of its efforts to implement a recently signed trade agreement with Washington.

Beginning February 14, China will cut tariffs on some U.S. goods to 5 % from 10 %, while levies on some other items will be reduced to 2.5 % from 5 %, China’s Ministry of Finance said in a statement Thursday. The tariffs were imposed in September and December during a brutal trade fight between the world’s two largest economies.

Export goods at Shanghai Port, caption courtesy by Wall Street Journal

The tariff cuts come amid growing doubts about Beijing’s ability to follow through on the phase-one trade deal, in which China has pledged to boost its purchases of American merchandise and services by USD 200 billion over two years.

A coronavirus outbreak that began in China in late January and has spread to more than a dozen countries has caused a near-standstill in economic activity in the country. Chinese authorities have placed many parts of the country on lockdown in an effort to contain the epidemic.

Even before the outbreak, many economists and analysts cast doubt on Beijing’s ability to meet the agreement’s purchasing targets, which cover products ranging from soybeans and poultry, oil and gas to manufactured goods. Now, with the health crisis threatening an already weakening economy, Beijing could find it more difficult to follow through on all of its pledges.

Even so, the decision to reduce tariffs indicates that the Chinese leadership remains intent on implementing the deal that has helped halt the nearly two-year trade war between the two nations.

In a statement accompanying the announcement, the Finance Ministry said the decision was intended to “alleviate economic and trade frictions and expand economic and trade cooperation” between the two countries. “We hope to work with the United States towards the ultimate elimination of all increased tariffs,” it added.

As a condition of Beijing signing the initial trade deal, inked on January 15, the U.S. agreed to cut tariffs on USD 120 billion of Chinese goods by half, to 7.5 %, within about 30 days, and to forgo other planned tariffs.

The biggest section of the phase-one deal covers Chinese pledges to increase U.S. imports. Beijing agreed to buy an additional USD 200 billion in goods, split across 2020 and 2021, with USD 77 billion in additional trade the first year and USD 123 billion the second year.

Over the two years, China agreed to boost its purchasing of U.S. goods above 2017 levels, including an increase of about USD 78 billion in manufacturing, USD 32 billion in agriculture, USD 52 billion in energy and USD 38 billion in services. In 2017, the U.S. exported USD 186 billion of goods and services.

To fulfil the targets, U.S. exports to China would need to climb to USD 263 billion in 2020 and USD 309 billion in 2021, an increase without precedent in the history of U.S. trade.

Chinese officials have indicated that it would cut tariffs in a bid to fulfil these pledges.