What impact will the "301" list put forward by the United States twice have? It is worth further analysis from the data. The full text is about 6600 words.
Michael Kinsley, a columnist in Washington Post, once imagined the following scenario when introducing the game theory of Thomas Schelling, a great game theory scholar and Nobel laureate in economics:
"You are standing on the edge of a cliff, with chains around your ankles, and your opponent is locked at the other end of the chain. As long as your opponent gives up, you will be released and win a big prize. Here’s the thing: your only means is to threaten to push him off the cliff — — But that means you’ll be shattered, too. So, how can you persuade your opponent to give in? "
Schelling’s answer is: "You start dancing and get closer and closer to the edge of the cliff. In this way, you don’t need to convince your opponent that you are crazy — — Take him and yourself out of the abyss. All you need to do is convince your opponent that you are more willing to take the risk of falling off the cliff out of control than he is. If you can do this, you will win. "
Schelling’s thoughts have influenced a generation’s understanding of the Cold War between the United States and the Soviet Union. Fortunately, or unfortunately, after the end of the Cold War and the development of globalization for nearly 30 years, we may have to turn back to the old paper pile to find the wisdom of our predecessors.
The reality is that after at least two rounds of negotiations and a "consensus" were reached between China and the United States, President Trump once again opened the trigger insurance for the Sino-US trade war. On May 29th, Trump announced that he would continue to seek to impose punitive tariffs on China’s imports. On June 15th, another boot that the market has been waiting for fell, and the Office of the US Trade Representative published a list of goods worth about $50 billion for China. Compared with the preliminary list published on April 6, the new list has undergone two changes: First, 818 of the 1,333 8-digit HS-coded commodities listed in the preliminary list have been retained. As the first batch of commodities in the final list, they have already faced 25% additional tariffs from the US Customs on July 6, and this batch of commodities is worth about $34 billion. Second, a second batch of goods has been added to the final list, including 284 goods worth about $16 billion, which will be taxed after the hearing procedure.
The President of the United States, who is well versed in "the art of trading", did not give the market a breathing space. On July 10th, the President announced that he planned to impose a 10% tariff on a new batch of China goods worth $200 billion, and held a hearing in late August. Another boot hangs high, waiting to land … …
Almost at the same time, the Trump administration also announced a tax on steel and aluminum products exported to the United States by the European Union, Canada and Mexico. Trump’s capricious and all-round "fighting style" has left his opponents (and perhaps some of his ministers) at a loss. This repeated change (let’s call it "Trump uncertainty") may reflect his firm belief in fulfilling his promise to voters, or perhaps the game between the two forces of hawks and doves in his cabinet. We don’t know. But one thing is certain: the Trump administration’s eyes have always been fixed on containing the future potential of China’s economic development. "Made in China 2025", which was issued by the State Council in 2015 and the China version of "Industry 4.0" plan, finally became a household name with the Sino-US trade dispute in 2018.
Then, what kind of impact will the "301" list put forward by the United States twice have? It is worth further analysis from the data.
Analysis of tax list
First of all, considering the "232" list of steel and aluminum products in March, the "301" list of $50 billion imported goods in June, and the "301" list of $200 billion added in July, at present, the scope of US taxation on goods from China is close to 50% of all its imports. We use the import data published by the US Bureau of Statistics in 2017, so the actual amount involved is slightly different from the target amount announced by the US government. Interestingly, the list in July involved goods worth nearly $200 billion, covering 6,031 goods with HS8-digit codes, while the remaining goods that have not yet entered any list, worth nearly $260 billion, accounting for more than half of the US imports from China, only contained 3,313 goods with HS8-digit codes. In other words, there are real "big guys" who are not involved in the "trade war". Judging from the share of these goods in the total imports of similar goods in the United States (column [6] of Table 1), it can also be clearly seen that with the spread of the "trade war", China goods listed in the tax list in July accounted for 23.2% of the total imports of similar goods in the United States, far exceeding the two lists in June (7.7% and 14.7% respectively), while these goods that have not been listed account for 38% of the imports of similar goods in the United States. It can be said,Strategists who want to know what is the "pain point" of the United States and what is the real competitiveness of China manufacturing may wish to study these products that are not on the list.
Note: Data are from the United States Bureau of Statistics; 6— There are 51 items, 11 items and 1,030 products in the three lists in July, and the value of US imports from China in 2017 is zero. One product, aluminum products, is listed on the "232" list of steel and aluminum and the "301" list in July.
From the bar chart in Figure 1, we can see the distribution of different listed goods in different industries more intuitively. According to the definition of customs, we divide all commodities into 22 categories, from animal and plant products to works of art and unclassified products. According to the value of the "301" list in June, figure 1 is obtained from the highest to the bottom. Obviously, on the list in June, mechanical and electrical products, optical, medical devices, transportation equipment and other industrial intermediates and parts are the most concerned objects. By July, on the list of 200 billion yuan, electromechanical still topped the list. The proportion of miscellaneous products, especially some direct consumer goods (such as games, furniture, chairs, lamps and lighting devices, etc.) has increased significantly. More importantly, the product areas covered by the July list have also increased significantly. Among the 22 industry categories, the June list only involves 8 industries, while the July list has not been spared except for weapons and ammunition and unclassified goods. At present, products that have not been listed on the tax list are mainly concentrated in industries such as electromechanical, textile, miscellaneous products, shoes and hats.
Note: The above 8-digit commodities of HS do not include 330 commodities (except 76169951) worth $2.8 billion in the list of steel and aluminum 232. The list taxes steel products by 25% and aluminum products by 10%.
Data source: The author collates the data from the United States Bureau of Statistics.
So to what extent will the taxation of these goods affect the domestic economy of the United States? A simple judgment method is: If there are many competitors for a commodity and the market share of China exporters is low, then the tax on the product may have little impact, because the buyer can easily find a substitute. Therefore, in Figure 2 to Figure 4, we classify the products listed in June, July and not listed in the list according to the industry categories defined by China Customs, and calculate the proportion of the value of US imports from China in the total imports of the same category, so as to reflect the dependence of the United States on China’s exports. It can be seen that among the eight categories of goods affected by the list in June, base metal products account for the highest import share, but only 28.2%. Followed by ceramic glass products and electromechanical products (17.2% and 16% respectively). By contrast, for the July list, China is the main source of imports for the United States in a considerable variety of products. Shoes and hats exported from China account for 73.8% of the total import value of such products in the United States, and the import shares of miscellaneous products and fur products are as high as 65.6% and 60.4%.
Data source: The author collates the data from the United States Bureau of Statistics.
Data source: The author collates the data from the United States Bureau of Statistics.
In this $260 billion commodity that is not listed in any list, China accounts for an even larger proportion. For example, vegetation products account for 75%, the remaining mechanical and electrical equipment accounts for 73%, and shoes and hats account for 72%. There are eight major categories of products, and the import proportion of China in the United States exceeds 50%.
Data source: The author collates the data from the United States Bureau of Statistics.
The use of goods exported from China to the United States is also very important. According to the BEC classification standard of the United Nations Statistics Department, we classify commodities into four categories according to their final use: consumer goods, capital goods, intermediate products and other four categories. Using the value data of goods imported by the United States from China in 2017, Figure 5 compares the total import value of goods listed in June, listed in July and not listed in each category. In June, the products targeted by the two lists were mainly capital goods and intermediate goods (accounting for 94.4% and 97.6% respectively). The import value of capital goods in List 1 was comparable to that of intermediate goods, both of which were more than 15 billion US dollars, while the value of intermediate goods in List 2 was twice that of capital goods, accounting for 65.2% of the total import value of List 2. The July list covers all categories, among which the value of intermediate products is as high as 94.7 billion US dollars, accounting for the highest proportion (48.1%); Capital goods ranked second, with a total import value of US$ 57.5 billion, accounting for 29.2% of the total import value in the list. What is important is that the share of consumer goods in each list has increased significantly. In June, the consumer goods involved in the two lists were worth $163 million and $339 million respectively, accounting for only 0.5% and 2.4% of the total value of their respective lists; In July, consumer goods accounted for 22.7% of the list. In 2017, the import value totaled 44.8 billion US dollars, which was more than 89 times the sum of the value of consumer goods in the two lists in June. The goods not nominated in the list mainly belong to capital goods and consumer goods, worth $120.7 billion and $98.3 billion respectively.It accounts for 46.6% and 37.9% of the import value of goods not on the list. Another $34 billion of intermediate products have not been affected by the tax list. It can be said that with the intensification of the "trade war", American consumers will inevitably be directly affected by rising prices. The manufacturing enterprises in the United States will inevitably face the pressure of rising parts costs, leading to a decline in competitiveness, which may further reduce American exports.
Further, in Table 2, we list the top 10 products (HS4-digit codes) imported by the United States from China in 2017, and count the amount of these 10 products affected by each list and the number of HS8-digit products respectively. Obviously, these 10 products that the United States needs most from China are not the key targets of the US tax list. These products were basically spared in the two lists in June, while the value of products taxed by the list in July for the first-ranked wireless communication equipment (such as mobile phones) was $23.6 billion, accounting for 32.9% of the total imports of such products. Automatic data processing equipment (computers) and spare parts products ranked second and third are the few products in the top 10 categories that are taxed by the June list, but they only account for 2.9% and 1.4% of the imports of their respective HS4 products. However, the list in July increased the tax value of these two kinds of products, and the import proportion of taxed products rose to 15.6% and 98.6%. Interestingly, all computer parts and components were included in the tax list, but did it lead exporters to further transfer processing and assembly to China and export finished computers? In addition, imported furniture ranked sixth and auto parts, lighting devices and suitcases and handbags ranked eighth to tenth were all wiped out in the July list.
Furthermore, from the point of view of HS8-digit products, Table 3 summarizes the distribution of market share of listed products in the United States. According to the import data of the United States in 2017, we calculated the share of HS8 products imported by the United States from China to similar products imported by the United States from the world. It is not difficult to find that the market share of China commodities targeted by the steel and aluminum 232 list and the two lists in June is mainly concentrated in 0-mdash; 25% and 25%— In the 50% range. In July, however, the list gradually shifted its target to commodities with larger market share, and the scope and intensity of the spread were significantly increased. The market share is at 50%— 75% and 75%— For goods within the range of 100%, the cumulative import amount taxed by the July list is 40.8% and 24.5% of the total amount of the July list respectively. Among the commodities that have not been affected by the list, the market share of commodities worth $163.3 billion exceeds 75%, accounting for 63% of the total value without tariffs.
Taxation and "Optimal Tariff": A Theoretical Explanation
From these analyses, we can know that if the scope of taxation in the United States is extended to its July list, or even further extended to products that are not listed, it will inevitably hit those products that China imports in the United States, including a large number of consumer goods and a wide range of industrial intermediates. This will not only hit China’s export enterprises, but also hurt the welfare of American consumers. In this sense, tariffs are essentially "taxes levied on domestic consumers" (Dartmouth College economist Douglas Irwin).
What is worrying is that "Trump uncertainty" will bring great troubles to the efficient global value chain, and force entrepreneurs to consider political factors while considering the global production layout. Even if we don’t consider the effects that will take some time to show, in the short term, tariffs will immediately increase the cost of exporters. These extra costs will force exporters in China to lower the export price and partially "share" the price increase faced by consumers (in the case of prevailing intermediate trade, consumers here are often producers in downstream industries). The part that cannot be fully shared will be "transmitted" to consumers, forming the after-tax import price.
Obviously, the stronger the downstream buyers (consumers), the more they can force the upstream sellers (exporters) to make concessions and lower some export prices. Consumers like you and me can’t change the market price by buying more or less. In economic terms, we are faced with infinite supply "elasticity", or the supply curve is horizontal. But big buyers are different. For example, a big supermarket like Wal-Mart can completely influence the price through the purchase volume. At this time, the supply curve is inclined upward. It is also true to further expand the analysis to the national perspective. Small countries can’t influence the world price, but they are the recipients of the price, while big countries are faced with an upward supply curve and can influence the world price. Obviously, the United States is a real big country and the largest market in the world. Therefore, it can press exporters to lower prices by imposing import tariffs. In the theory of international trade, the ratio of export price to import price is called "terms of trade", which can be improved by imposing tariffs to force the import price to decrease.
Therefore, for a big country, increasing tariffs will certainly lead to the loss of consumer welfare — — Because the after-tax price faced by consumers is still rising, from the welfare point of view, the improvement of terms of trade means that there is such a positive "optimal" tariff, which maximizes the net income of big countries. This may be one reason why Trump dares to wave the "tariff" stick. Specific to each product, its "optimal" tariff rate depends on the supply elasticity of the commodity (exporter). For goods with less elasticity of supply, the response to tariffs is more intense, the proportion of export price decline is more, and the optimal tariff is bigger. Therefore, international economists have abstracted a very simple formula to determine the optimal tariffs of different commodities in the case of big countries, namely: tariff rate = 1/export supply elasticity.
Further analysis of tariffs
Based on this, we summarize the original tariff level of each listed commodity in Table 4. Generally speaking, American import tariffs remain at a fairly low level. The tariff of most imported goods is less than 5%, while the tariff of quite a few goods is zero. For example, in June, 375 of the commodities involved in List 1 had no import duties, accounting for 60.9% of the list value. This proportion is 48.6% in June list 2 and 54.2% in July list. In the two lists in June, only five goods with the original tariff of HS8 were higher than 10%, and the sum of import values was less than $05 million, while in the list in July, there were 329 goods with the original tariff higher than 10% and the total import value was $3.228 billion.
Data source: According to the data compiled by the US Bureau of Statistics, some commodity tariff data are missing.
Figure 6 compares the import tariffs of the United States with those of China. We weighted the import tariffs of China and the United States according to the import value according to 22 categories of industries, and got Figure 2. Each point in the graph represents the import tariffs of the United States (horizontal axis) and China (vertical axis). Most of the points are above the 45-degree line, which shows that the tariff structure between China and the United States does have the situation that the US tariff is lower and the Chinese tariff is higher. This goes without saying, but considering the current tariff structure of the United States, it began in 1934 that President Roosevelt took the initiative to lower tariffs and sought other countries to lower trade barriers in order to promote American exports. As the country that has benefited the most from international trade, the United States led the signing of the General Agreement on Tariffs and Trade (GATT, the predecessor of WTO), which advocated free trade. China, on the other hand, only started the negotiations on joining the WTO in the mid-1990s, and reduced the import tariff from an average of 43% in 1992 to around 9.8% in 2007. In addition, in Figure 6, we have not considered the import of processing trade that is common in China, which accounts for about 13% of China’s imports from the United States, and it is exempted from customs duties or refunded in the import process.
Figure 6 Comparison of Weighted Import Tariff (MFN) between China and the United States
Source: WITS (2016), compiled by Qin Ruobing.
According to the optimal tariff theory, we re-estimate the optimal tariff of American goods imported from China by using the elastic estimation data provided by Anson Soderbery, an economist at Purdue University. HS8-bit commodities with missing elasticity data are replaced by the average elasticity of the commodities at HS6, HS4 and HS2. Table 5 summarizes the relationship and proportion of the actual original tariff, new tariff and optimal tariff of each imported commodity. Obviously, after the tariffs were added to the three lists, the new tariffs of most commodities exceeded the optimal tariffs. In June, 71% and 48% of goods were listed in the list 1 and July, respectively, and their original tariffs were lower than the highest tariffs. After adding 25% and 10% tariffs respectively, the proportion dropped to 43% and 26%. Among the commodities targeted in Listing 2 in June, 57% of the commodities have their original import tariffs exceeding the optimal tariffs. After the tariff of 25% is added, the proportion of goods exceeding the optimal tariff will be as high as 75%.
Data source: The author estimates according to the elastic data provided by Soderbery (2018JIE). Some commodity tariff data are missing.
Game dilemma of optimal tariff
Since there is such an "optimal" tariff for a big country, the improvement of terms of trade brought by tariff collection offsets or even exceeds the loss of consumer welfare, why do economists actively advocate tariff reduction? This is because in this world, not only a big country, even a small country, often has the ability to influence world prices in certain industries or commodities, not to mention domestic political considerations and national sentiments, and it will not allow a country to impose tariffs on the other side without taking any countermeasures. Imagine, if there are only two countries in the world, and they all give each other a tariff attack on a specific industry according to the theory of optimal tariff, both sides have improved their terms of trade in the industry that raised import tariffs, and suffered losses in the export industry. In most cases, the result is that both sides are in a dilemma: both sides get benefits by increasing tariffs to attack their opponents, but if both sides take measures to reduce tariffs, both sides can benefit; However, the difficulty is that neither side can or will unilaterally declare a truce — — Because it means greater losses. In this way, the two countries have fallen into the common "prisoner’s dilemma" in game theory. In this game, each side acts according to the optimal strategy under given conditions, but the final outcome is "lose-lose".
If every country in the world acts unilaterally according to the optimal tariff strategy, or retaliates against the tax payers, then we will go back to the Great Depression in the 1930s, due to the introduction of Smoot — The Smoot-Hawley Tariff Act pushed the average import tariff of the United States from 40% to nearly 60%. In just two years, the import and export of the United States fell by 40% at the same time. The world trading system has suffered a major blow.
Is there a solution to jump out of the "prisoner’s dilemma" of building trade barriers? History has long given us the answer. In the process of European reconstruction after World War II, Americans led the signing of the General Agreement on Tariffs and Trade (GATT) in 1948, and through an external agreement, they forced the signatory countries to reduce or exempt tariffs from each other, thus jumping out of the "prisoner’s dilemma". GATT, as well as the World Trade Organization (WTO), which replaces GATT, stipulates that when a country reduces or exempts tariffs on one GATT member, it must also undertake the same duty of reducing or exempting tariffs on all other GATT members. This is the most important principle of "Most Favoured Nation" in GATT. This principle also protects many small countries that do not have the negotiating ability to share the welfare improvement brought about by trade liberalization to the greatest extent.
Ironically, today, with the development of globalization far exceeding the 1950s, the main founders and promoters of the international multilateral economic and trade system are working to challenge or even destroy this system, instead of improving and perfecting it. Carla Hills, an American trade representative in the 1990s, once said, "Without WTO, the world would have only the law of the jungle". I hope that the leaders of China and the United States, and even the world, will have enough courage and wisdom to lead us away from that scene.
