Tariff Structure, Intermediate Goods, and China–U.S. Trade Friction

Haichao Fan

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000359138
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Focusing on the interconnection of tariff structure, international trade and welfare evaluation, the book investigates the characteristics of tariff structures of China and the U.S. in recent years and measures the impact of the Sino–U.S. trade friction that started in 2018. The first part of the book discusses levels and evolution trends of tariff systems of China and the U.S. from 2000 to 2014 and makes a comparison between thetwo countries' tariff structures. The second part centers on the Sino–U.S. trade friction in 2018, analyzing its development, overall impact on welfare, and relevant impact mechanisms. The author draws on the quantitative analysis method currently prevailing in the field of international trade, taking global value chains, intermediate goods, and variable markup into consideration. In contrast to the research conclusion applying standard trade theory, the result indicates that either unilateral imposition of additional tariffs or bilateral tariff friction will give rise to the deteriorated welfare level of both countries. The book will appeal to academics and policy makers interested in international trade, China–U.S. relation and the trade friction.

Part 1

Characteristics of tariff structure of China and the U.S. and evolution differences

A tariff is generally a tax levied on imports.¹ Tariff structure refers to the correlation between the tariff rates of various commodities. Back in the 1960s, the statistical analysis of Balassa (1965) and other scholars found that many countries were adopting a cascading tariff structure, which was manifested in the incremental increase of tariff rates from upstream to downstream products and also from primary to manufactured goods.² Scholars such as Corden (1966) conducted further research and concluded that one of the reasons why the cascading tariff structure was mostly adopted was for its effect on protecting the domestic market and related industries of importing countries. So, do countries in the current world still adopt the cascading tariff structure? What are the characteristics of China’s tariff structure? Does it have any marked difference from that of other countries? This part will focus on these issues.

In recent years, a number of scholars have, from the perspective of welfare, further explored the relationship between a country’s tariff structure and its welfare and economic growth. For example, Takashi Fukushima (1979) has extended Hatta’s (1977) study and demonstrated that when tariffs on all high tariff products are lowered in equal proportions, the level of welfare and utility in importing countries will go up. A study by Anderson and Neary (2007) finds that changes in import tariffs can affect market access and thereby influence the level of welfare of importing countries. By extending the Grossman-Helpman “Protection for Sale” model and looking into the economic prospect of importing countries, Nunn and Trefler (2010) have examined the relationship between the “skill-bias” of tariff structure and the long-term economic growth of a country. A high degree of positive correlation between the two is found in their study.

These studies have further shown that to better formulate its national development strategy, tariff guideline, and policy, a country should be fully aware of the evolution trend and characteristics of its tariff levels and tariff structure, and their similarities and differences in contrast to those of other countries. However, few studies in the existing literature focus on a country’s tariff structure and explore the specific characteristics and evolution of a country’s tariff structure.

In view of this, based on the previous research results, the author analyzes the characteristics and evolution of the tariff structure of China and the U.S., and compares their differences from the following three levels:³

1.At the overall level, this book mainly discusses the trends and specific characteristics of three indicators over time, including the means, variances, and peaks of imported product tariffs of China and the U.S. at the HS2 chapter level from 2000 to 2014.

2.At the industry level, from the perspective of specific product characteristics, this book exhibits the tariff evolution and distribution in the two countries by exploring the tariff characteristics and changes of different imports. Two key indicators are selected, namely, the U.N. Classification by Broad Economic Categories (BEC) and elasticity of substitution of imports. These indicators depict the features of imported products in terms of their uses and correlation with their domestic counterparts, which can basically reflect the main characteristics of imported products.

3.At the tariff evolution level, from the two extreme tariff levels (the highest and the lowest...