Research

Issues in the tariff debates between China and the EU

Tariffs as a concept are both emotive and double edged. For one side they are seen as needed to help support and shelter indigenous industries form unfair competition by aggressive and subsidised exporters - they are presented as 'anti-dumping duties'. From the other side they are seen as 'protectionism', safeguarding uncompetitive industries from low cost and more efficient industry. When we then put into the mix that they often have a 'tit for tat' element and also involve consumers (directly or via assemblers), who may have other priorities, such as price (e.g for the British Retail Consortium the plastic bag tariff would raise leading UK supermarkets' costs by £61 million a year, which would be passed on to consumers, and tariffs on children's shoes would add £25 a year to shoe costs per child), then this is a volatile area.

We can see this in the recurring spats between China and the EU. More recent tariffs by the EU range from on underwear, plastic bags, shoes, ironing boards and bicycles to paper, textiles and chemicals. In July 2010 it spread to steel fasteners with China retaliating with the same on September, followed by EU plans to raise tariffs on Chinese aluminium wheels and then certain fibreglass. These last two cases are good exemplars of the issues.

Car-makers such as BMW and Ford are worried the tariffs could increase their production costs. Manufacturers estimate the duties will add more than 300 million euros to the cost of wheels bought in the EU every year, squeezing profits already depressed by the global economic downturn. In 2009 EU car makers bought about 35 million aluminium wheels (1 million from China) at a total cost of about 1.4 billion euros.

Regarding the fibreglass case, the stated aim is to counterbalance illegal market dumping by Chinese exporters, which the EU says, is hurting European producers. "The significant price undercutting prevented the Union industry from passing on increased production costs ... which resulted in low and ... negative profitability levels," the EU said in its official journal. There were complaints that fibreglass dumped on the EU market was threatening jobs at producers such as PPG Industries and Saint-Gobain Vetrotex. European fibreglass users, such as wind turbine producer Vestas, oppose higher tariffs, arguing they may create supply shortages and raise production costs for companies involved in turning fibreglass into composites used as wind turbine blades, lightweight hulls for ships and in cars.

Of course, key aspects in this debate are views of China as engaging in not only trade-distorting aid and illicit measures (eg to paper manufacturers and plastic bag producers - by means such as free land and tax holidays), but also currency interventions, with arguments the yuan is undervalued, so an illegal export subsidy.