Why China is cutting tariffs on everybody

Marielle Segarra Dec 23, 2019
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STR/AFP via Getty Images

Why China is cutting tariffs on everybody

Marielle Segarra Dec 23, 2019
STR/AFP via Getty Images
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COPY

China announced it is cutting tariffs on more than 800 products — including frozen pork and some medicines — for all its trading partners effective the first of the year. The cuts will bring tariffs on those items below levels currently enjoyed by “Most Favored Nations,” a designation created by the World Trade Organization in order to keep countries from doing each other special favors or special harm.

The WTO’s most-favored-nation rule says countries have to treat all their trading partners equally. They can’t raise tariffs on pork from one country but not another. Edward Alden, a senior fellow at the Council on Foreign Relations, said tariffs need to be the same for all trading partners who are members of the WTO.

There are some exceptions. For one thing, countries can raise tariffs on a trading partner if they prove it’s behaving badly, like if “the country is dumping its products at an unfairly low price, or the government is heavily subsidizing the product,” Alden said.

But the normal rules went out the window in the U.S.-China trade war. 

“The United States just gave up on the rules and just decided it was going to unilaterally impose these tariffs on China,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics.

China retaliated in kind. Then they both tattled on each other to the WTO.

Now, though, the U.S. and China are playing nice again. They’ve cut a deal that will likely treat the U.S. better than China’s other trading partners. And that’s not allowed. Remember, that whole “most-favored-nations” thing?

So China says it’s going to lower tariffs on everybody.

“They’re basically trying to make the argument to Europe and Japan and South Korea that we have to do certain things toward the United States,” Bown said. “But with respect to our trade with you, we’re going to continue to follow the WTO rules.”

Regardless of the rules, there’s a good reason for China to give these other countries equal treatment. It doesn’t want to make them mad.

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