China’s latest move shows it’s committed to fighting Trump in the trade war for the long haul

Chinese President Xi Jinping.

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Chinese President Xi Jinping.
source
Reuters/Pool

  • China announced it would cut tariffs on about 1,500 goods starting November 1.
  • The move comes days after the latest round of tariffs in the US-China trade war went into effect.
  • China’s tariffs cut shows the government is settling in for a protracted trade war with President Donald Trump and the US.
  • The tariff cut would decrease inflationary pressures on Chinese consumers and help to build relationships with non-American suppliers.

China’s government announced on Wednesday that the country would cut import tariffs on a slew of goods to lessen the impact of the trade war with the US.

Duties on textiles, construction equipment, and more than 1,500 other goods will drop on November 1, according to the Chinese government. Chinese state media said the move was expected to save consumers in the country 60 billion yuan, about $8.7 billion.

The move suggests that the Chinese government is digging in and expects the trade war with the US to last for some time.

All indications have pointed to an extended trade war as China canceled talks following President Donald Trump’s latest round of tariffs and the US is already threatening another round of restrictions.

But Wednesday’s move also shows that Beijing is also trying to tweak economic conditions to weather a drawn-out fight, Edward Alden, a senior fellow at the Council on Foreign Relations, said.

“Cutting tariffs makes a lot of sense,” Alden said. “If you’re worried about strengthening China’s position in the supply chain, if you cut tariffs – especially on intermediate goods – that helps the competitiveness of company’s within China and it helps keep down consumer costs at a time the tariff war is driving them up.”

Essentially, cutting tariffs for non-US goods would act as a release valve for some of the pressure from the trade war. Businesses and consumers in China won’t see as dramatic an increase in the cost of goods, which decreases public pressure on the government to come to an agreement with the US.

Additionally, the cut is likely to increase pain on US manufacturers as Chinese consumers shift from more expensive American goods toward cheaper alternatives from other countries. Scott Kennedy, a Chinese economic expert at the Center for Strategic and International Studies, said it means gains from the cut would go to non-US companies.

“In principle, these tariff cuts should apply to all imports, including those from the United States,” Kennedy told Business Insider. “But China is still likely to leave in place its retaliatory tariffs, meaning the benefits of these tariff cuts will go to other countries.”

Already Chinese producers have been turning to non-American sources for their needs, and the combination of higher tariffs on US goods and lower duties on other goods would likely speed up that shift.

Alden said this was also part of China’s long-term strategy. By building relationships with other countries, China can grow its economic influence worldwide and wean itself off an economic reliance with the US.

“Those tariff cuts are mostly going to benefit competitors of the US and that helps China build goodwill elsewhere,” he said.

In July, China announced cuts to tariffs on cars and other goods such as apparel and appliances. In all, Reuters estimated that China’s average tariff level would drop to 7.5% in 2018, from 9.8% in 2017.

Kennedy said that while the move does give a small boost to imports that should help other countries, it does not signal a broad shift in Chinese economic policy.

“The most important barriers to imports and foreign investment are non-tariff barriers,” Kennedy said. “No one should see this announcement as a turn away from industrial policy and the dominant focus on supporting domestic Chinese companies.”