China Makes a Pre-Emptive Tariff Strike

Perhaps realizing that its low cost structure and export capacity is creating negative sentiments on the world trading stage, China made the pre-emptive move this week of slapping export tariffs on its own domestically produced steel products. According to Purchasing, China "will start levying export taxes of 5% to 10% on 83 types of steel products" and will cut import tariffs on "209 types of goods" in order to "reduce the national trade surplus that has been irritating other nations". In the US and Europe, this will translate to higher prices for steel, as domestic providers will no longer face international pricing pressure from China, and most likely, regional supply will be reduced as Chinese suppliers curtail their exports. In the worst cases, this will lead to not only higher prices, but potential shortages as well.

As a final aside, I can't help but wonder if this latest move was more than a simple payback to US and European trade negotiators. Perhaps there's more to it than meets the eye. I'm guessing that ever increasing Chinese domestic demand will at least come close to making up for the lost export sales, making this an incredibly shrewd political move for the Chinese government. After all, they could have just as easily taken a more aggressive stance against the export of a broader range of value-added metals products such as more complex stampings, forgings and machinings (which would have had a more dramatic impact on the world manufacturing stage).

Jason Busch

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