China ready to help businesses hit by trade war with the U.S.
October 15, 2018 Category Foreign trade, Weekly
Chinese Finance Minister Liu Kun
China is ready to implement supportive measures, such as export assistance and skills training, to help business affected by the ongoing trade war with the U.S., Finance Minister Liu Kun has said, adding that “some regions and some companies” had already been hit by the trade war but “China has the capabilities to minimize the impact”. The Minister also said China would adopt a “more proactive” fiscal policy to counteract the downward pressure on economic growth, including cutting taxes and fees on a larger scale and speeding up bond issuance to safeguard economic growth. Total tax cuts for 2018 are expected to exceed CNY1.3 trillion, Liu said. China’s macro tax levy was only 27.2% last year, down from 28.2% in 2016, while the global average was 36.8%, according to the Ministry of Finance.
U.S. President Donald Trump has now imposed tariffs on nearly half of all imports from China, and China has retaliated with its own tit-for-tat measures. While China’s headline growth remained on track, there are growing signs of economic deceleration. In September, both the official and unofficial purchasing managers’ indexes for the manufacturing sector fell to their lowest levels since February on the back of a slump in export orders, production and inventory. Standard Chartered Economists Shen Lan and Ding Shuang wrote in a note that the impact of U.S.-China trade tensions “is expected to become more tangible in the quarters ahead”.
The Chinese embassy in Ottawa has publicly condemned a “poison bill” clause in the new North American trade deal that gives Washington an effective veto over any attempt by Canada or Mexico to agree to a free-trade deal with a “non-market economy” – a provision that is widely seen as targeting Beijing. The Chinese Embassy said in a statement that article 32.10 in the U.S.-Mexico-Canada Agreement (USMCA) was “fabricating the concepts of ‘market country’ and ‘non-market country’ outside the World Trade Organization (WTO) framework” and was “the excuse made by some countries to shirk their obligations and refuse to meet their international commitments. We condemn the hegemonic acts by related countries of publicly interfering with the sovereignty of other countries, and we feel sorry for the damaged economic sovereignty of the countries concerned,” Embassy Spokesperson Yang Yundong said. While the special clause does not name China directly, it could greatly impede China’s future trade talks with Canada or Mexico because the U.S. has refused to classify China as a “market economy” under the WTO framework.
The decision to cut import tariffs from the start of next month is expected to reduce China’s overall tariff from 9.8% to 7.5%, which along with other measures will work to reduce tariffs by nearly CNY60 billion. The Chinese government decided to cut tariffs on 1,585 industrial products during an executive meeting presided over by Premier Li Keqiang on September 26. When the new tariffs come into effect, China’s overall tariff rate is estimated to be a little higher than the European Union and lower than many developing countries. Ministry of Commerce (MOFCOM) figures showed that the country imported goods worth CNY7.8 trillion from January to July, an increase of 12.6% compared with the same period last year. In the next 15 years, China is forecast to import goods worth USD24 trillion.
A further escalation of the trade war between the U.S. and China would take a major toll on economic growth in both countries next year, with China the bigger casualty, according to an economic analysis by the International Monetary Fund (IMF). The world economy would also suffer, the IMF said. Based on the trade tariffs already in place, the organization revised down its estimates of world growth this year and next by 0.2 of a percentage point to a still healthy 3.7%. Assuming the US slaps tariffs on all Chinese imports, as US President Donald Trump has threatened to do, the effect on consumer and business confidence combined with the negative financial market reaction would probably cut the GDP of the United States by more than 0.9% in 2019, while Chinese growth would be 1.6% lower than it otherwise would be, the IMF said.
Relations could worsen further with the publication this week of the U.S. government’s Foreign Exchange Report, if it labels China a currency manipulator, as some analysts expect it will. Whether China is formally labelled a currency manipulator by the Treasury will depend on the extent of the standards and criteria used from two laws: the Omnibus Trade and Competitiveness Act of 1988 and the Trade Facilitation and Trade Enforcement Act of 2015. According to the 2015 Act, China meets only one of the three criteria to be considered a currency manipulator, namely that a country runs a significant bilateral trade surplus with the U.S. of at least USD20 billion. But the 1988 Act allows for a more subjective assessment of whether a currency is being manipulated to provide an unfair competitive advantage in trade. International Monetary Fund Director Christine Lagarde has dismissed the idea that China is manipulating its currency to gain a competitive advantage. The last country declared a currency manipulator by the U.S. was China in 1994.
China will not cave in to US demands even if it faces further tariffs on its exports, China’s Commerce Minister Zhong Shan has said, signaling Beijing’s uncompromising stance in dealing with U.S. as President Donald Trump has said that China is not ready for a trade deal and reiterated he was prepared to levy further tariffs against Beijing. “China wants to make a deal, and I say they’re not ready yet,” Trump told reporters at the White House.
People’s Bank of China Governor Yi Gang has met with U.S. Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell on the sidelines of the World Bank annual conference in Bali, Indonesia, and exchanged views on “relevant economic and financial issues”, but their talks were not focused on the trade dispute.
China’s monthly trade surplus with the United States rose to a record high of USD34.1 billion in September, a 10% increase from the USD31.05 billion surplus booked for August, suggesting Washington’s tariffs on imports of Chinese products have yet to have the desired effect of narrowing the trade gap between the two countries.
- KURT VANDEPUTTE (UMICORE) APPOINTED CHAIRMAN OF THE BOARD OF THE FLANDERS-CHINA CHAMBER OF COMMERCE (FCCC)
- Webinar: “Knowing Your Chinese Partner” – May 26, 2021, 10 am – 12 am
- EMA starts rolling review of CoronaVac, WHO approves Sinopharm vaccine for emergency use
- The Global Times warns not to politicize the Comprehensive Agreement on Investment (CAI)
- Hainan to become biggest duty-free market in the world