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Since joining the World Trade Organization (WTO) in 2001, China has brought 21 cases to the global trade body and has been the defendant in 44 cases. Photo: AFP

ExplainerChina tariffs: what are they and how are they used?

  • Tariffs, along with anti-dumping and countervailing duties, are tools in the protectionist trade policy armoury, but their functions and applications differ
  • In recent years, China has seen a spike in bilateral tariffs with the United States, due to the tit-for-tat tariffs levied on each other’s exports during the ongoing trade war

What are tariffs?

Tariffs are extra customs duties imposed on imported goods, usually paid by importers. Tariffs are generally designed to make imported goods more expensive than similar products produced domestically. And because they are designed to protect the domestic industry, they are often described as “protectionist”.

Import tariffs are viewed as a form of taxation, the revenues of which go to the government. Most independent trading nations or territories have tariff regimes, charging a percentage on imported goods, codified in its customs agencies’ tariff schedule.

Notable exceptions are Hong Kong and Macau – independent members of the World Trade Organization (WTO) that have an average weighted tariff rate across all products of 0.0 per cent. Singapore, another free-trade hub, had an average tariff rate of 0.2 per cent in 2018, according to the last available data from the World Bank. By contrast, tiny Palau in the western Pacific Ocean had the highest average tariff, at 34.6 per cent, in 2018.

The global average in 2017, according to the World Bank, was 2.6 per cent. High-income nations, with an average tariff rate of 2.0 per cent, typically have lower tariffs and more open economies than lower-income countries, where the World Bank found the average tariff rate to be 9.8 per cent.

This suggests that richer countries are generally more comfortable with free trade, while poorer countries often do not have industries that can compete with global players, and typically follow more protectionist policies. Governments in poorer countries are also more likely to need the revenue generated from import tariffs.

What is China’s tariff regime?

In line with the developmental path followed by many nations, China’s average tariff rate has fallen as the country has become more prosperous. Its average weighted tariff rate in 2018, per World Bank data, was 3.4 per cent, above the global average, but down from 32.2 per cent in 1992. China’s average tariff rate almost halved between 2001 and 2002 after it joined the WTO.
As with most other countries, China’s tariff regime is designed to support its domestic industries. In recent years, China saw a spike in bilateral tariffs with the United States, due to the tit-for-tat tariffs levied on each other’s exports during the trade war.

How do they differ from anti-dumping and countervailing duties?

Tariffs, along with anti-dumping and countervailing duties, are tools in the protectionist trade policy armoury, but they are all slightly different, even if the shared ultimate goal is to make targeted imports more expensive in a domestic market.

A tariff is typically designed to maximise either domestic revenue or protect domestic workers – for example, by safeguarding jobs in areas perceived to have been hurt by globalisation.

Anti-dumping duties, on the other hand, are set by governments on imports found to have been “dumped” on the market – i.e. when a company is exporting goods at a lower price than it charges in its home market. The rate of an anti-dumping duty is typically set at the difference between the price at home and abroad.

Countervailing duties are customs duties slapped on goods that have received government subsidies in their home market. These are usually inexpensive goods that flood the market. Such government subsidies allow exporters to undercut the competition in overseas markets.

If a WTO member nation considers tariffs, anti-dumping duties or countervailing duties to be unfair or mistaken – for example, if the duties may be considered to be calculated incorrectly – they are eligible to dispute the case at the WTO.

What is China’s record in WTO cases, in relation to trade, tariffs and duties?

Since joining the WTO in 2001, China has brought 21 cases to the WTO – 16 of which were against the US – and has been the defendant in 44 cases, 23 of which came from the US. The US was victorious in 20 of the cases that it brought against China, with three outstanding verdicts.

China has won only about one-third of the cases it has brought against the US, according to an analysis by the Peterson Institute for International Economics.

In October, a WTO dispute settlement ruled in China’s favour in a suit China brought against US President Donald Trump’s trade war tariffs. Washington appealed the verdict.
However, because the US has blocked the appointment of new judges to the WTO’s Appellate Body – its final court of appeal – the case is stuck in legislative limbo.

How have tariffs been used in the ongoing US-China trade war?

While the first 18 months of the Trump presidency were littered with tariff threats, the shot that officially started the US-China trade war came on July 8, 2018. After an investigation under Section 301 of the US trade law, American customs authorities began collecting 25 per cent import tariffs on US$34 billion worth of Chinese goods.

China retaliated with a 25 per cent tariff on US$34 billion worth of US goods.

A month later, the US announced a second raft of tariffs of 25 per cent on US$16 billion worth of Chinese goods. China retaliated with the same tariff rate on the same value of US goods.

That September, the US announced a 10 per cent tariff on US$200 billion worth of Chinese goods, to which China responded with tariffs of 5 and 10 per cent on US$60 billion worth of American goods.

At its peak at the end of 2019, the US had imposed tariffs on more than US$360 billion worth of Chinese goods, while China had retaliated with import duties of their own worth around US$110 billion on US products.

Has China used tariffs against Australia?

China has not yet used tariffs in its trade dispute with Australia, instead resorting to anti-dumping duties and countervailing duties.
It has slapped an 80.5 per cent duty on Australian barley – comprising an anti-dumping duty of 73.6 per cent and a countervailing duty of 6.9 per cent.
In November this year, after an investigation into the alleged dumping of Australian wine on the Chinese market, China announced preliminary anti-dumping duties of between 107 and 212 per cent on a range of wines.

What is the outlook for China’s use of tariffs?

In November, China and 14 other Asia-Pacific nations signed the Regional Comprehensive Economic Partnership (RCEP) – the world’s biggest free-trade deal by population and gross domestic product covered.

The thrust of the deal involves tariff reductions between members. RCEP will see around 92 per cent of tariffs progressively eliminated between the member nations over 20 years, with exceptions in certain areas such as agriculture. RCEP consists of the 10 Asean nations, plus Australia, China, Japan, New Zealand and South Korea.

President Xi Jinping has also said China would “actively consider” joining another Pacific Rim trade pact, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Some analysts say it is unlikely that China will be able to meet terms of the CPTPP in the short term, but Beijing’s former top trade negotiator Long Yongtu has called such claims groundless.

Want to know more?

Each week, political economy journalist Finbarr Bermingham wraps up the latest developments in tariffs, diplomacy and economics from reporters and editors at the Post in the US-China trade war podcast.
And in every episode of the Inside China podcast, we take a deep dive into a specific topic, mixing independent reporting and exclusive interviews to bring you unique insights into an emerging potential superpower. Now, we are featuring regular updates on the coronavirus pandemic from across the country.