South-Western College Publishing - Economics  
China Sets Textile Export Tariffs
Subject Tariffs
Topic International Trade
Key Words

Tariffs, Quotas, Exports, and Imports

News Story

The Chinese government placed a tariff on domestic manufacturers to slow textile exports to the U.S. and European countries. The move comes after the U.S. placed limits on Chinese textile imports, decreasing the growth rate of Chinese textile imports to 7.5 percent a year. As a comparison, this year's Chinese textile imports into the U.S. are 54 percent above the same period of 2004, according to the U.S. Commerce Department. The U.S. limits apply to men's and boy's cotton and man-made fiber shirts, man-made fiber trousers, man-made fiber knit shirts and blouses, and combed cotton yarn.

The Chinese measures take effect on June 1. The new tariffs apply to 74 types of goods and will raise tariffs (taxes) on Chinese exporters by up to 400 percent, according to the official Xinhua News Agency. The agency did not give details, but said that China now charges tariffs of 2 to 4 percent on 148 categories of textile and clothing exports. The average tariffs under the new plan are expected to range between 10 and 20 percent.

Such export tariffs make Chinese goods more expensive to American and European consumers. As Chinese product prices increase, other countries' products become more competitive in the international market. Thus, any trade deficits in these other countries relative to China should narrow. Additionally, competing manufacturers should be able to capture larger shares of textile markets and stop job leakage that many analysts blame on low-cost Chinese products.

The American Chamber of Commerce in Beijing welcomes the increased tariffs. "I think this is going to have a real impact," said Chamber President Charles M. Martin.

French Industry Minister Patrick Devedjian also welcomes the higher tariffs and the resulting higher prices for Chinese-made clothing. In a brief statement he said, "There is no doubt that it is in the right direction."

The Bush administration is reviewing the list of textile exports affected by the new tariffs. U. S. Commerce Department representative Dan Nelson had little to say about the administration's current position on China's action. He did say that there would be "an opportunity for discussion" when the two countries' leaders meet in May. U.S. and Chinese representatives will then consult over the recent U.S. decision to impose import quotas on certain types of Chinese clothing coming into America.

China's move to raise tariffs on certain goods should ease the tension that has developed among China and other countries that are hurt by cheap Chinese textiles. But cheap textiles represent only one of the disputes that strain relations between China and its trading partners. The European Union, the United States, and other countries are also pressuring China to stop pegging its currency, the yuan, to the value of the U.S. dollar and to eliminate the rampant activity in product piracy.

Sun Huaibin, a spokesperson for the official China Textile Industry Council, says that Chinese textile producers will have to "make sacrifices. . .China is a responsible country, and it is for the purpose of helping [to] establish a new world textile trade order and ease the trade friction that the government made the concession," he said.

Questions
1.

Discuss the effect of the new Chinese export tariffs on U.S. clothing prices.

2. How will tariffs help reduce the U.S trade deficit with China?
3. Discuss the effect of U.S. quotas on Chinese products and on the Chinese economy overall.
Source Associated Press, "China Imposes Export Tariffs on Textiles," The New York Times Online, May 20, 2005.

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