China announces additional import tariff cuts aimed as a win-win strategy for both local and foreign companies

On 30 May 2018, China’s State Council announced a second round of import tariff cuts on a range of consumer goods. Effective from 1 July 2018, the tariff cuts, as affirmed by the Ministry of Finance (MOF), aim to boost domestic consumption and advance China’s supply-side reforms. In total 1,449 product categories from preferred nations are lowered, including products ranging from clothing, makeup and health products to food and beverages. Significant reductions are highlighted in the below table.

Product Previous Average Tariff Adjusted Average Tariff
Processed food and seafood 15.2% 6.9%
Makeup and healthcare products 8.4% 2.9%
Clothing apparel 15.9% 7.1%
Home appliances 20.5% 8%
Types of jewellery 35% 10%

In the first round of tariff cuts made last December 2017, 187 types of consumer goods were lowered from an average 17.3 % to 7.7%. Significant reductions on products such as infant milk formula were reduced to zero, enabling large foreign producers to compete directly with local brands. As foreign and local companies compete for the domestic market, the increased competition stands to improve the quality of output from local companies, moving them further up the value chain. Additionally, the MOF notice cancels the previous provisional tariff rates for preferred nations. Tariff reduction provides a win-win for both domestic consumers and foreign companies. For foreign companies, the tariff reductions are an important incentive to extend products into China’s increasing middle class. For Chinese domestic consumers, the reductions allow access to a broader range of products and quality items than presented with last December’s tariff cuts.

Tariff cuts are cited as part of China’s deepening advances toward opening its market to foreign companies. Equally, tariff cuts fall into China’s supply-side structural reforms (SSSR) that were mapped out in December 2015 at the Central Economic Work Conference. Primarily, SSSR is referenced as the main framework for economic policy and shifts economic growth to a sustainable and quality-driven model. Innovation, high-value products and lower corporate costs are the principle concepts of SSSR.

In observing the larger picture, tariff cuts serve as a long-term win-win strategy for local and foreign companies as well as Chinse domestic consumers. A competitive market in which local and foreign companies compete for the domestic consumer can improve overall product quality while nurturing new industries within China.

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