China’s New Tariff Policy Under-Appreciated

By Chip Hanlon | December 31, 2007 | 1:51 PM | 2 Comments

 

I can't believe how little attention is being paid to the tariff changes officially announced last week by the Chinese government.  It's still holiday week so I'll keep this short, but here's a short summary of just some of the highlights on the import side:

- Tariffs on imported gas, diesel and jet fuel were cut to 1%

- Tariffs on imported metals were abolished

- Import duties on coal, key equipment and other component parts were cut, as well.

On the export side, however:

- Steel tariffs were increased 

- Export duties are being increased on wood pulp, coke, and other manufacturing-related raw materials

- Agricultural exports including corn, soybeans, rice and others will face tariff increases ranging from 5 to 25%!

Setting aside all the "official" reasons for these moves, which ranged from the environment to fighting inflation, the underlying story is clear: China needs to do whatever it can to make it easier for raw materials to cross into its borders, and harder for them to make their way out.

Translation: China's appetite for raw materials is still booming unabated.

As I wrote a few days ago, statements about how China's demand for such raw materials should continue through the 2008 Beijing Olympics completely misses the mark.  This voracious appetite will not be satisfied for many years to come, to say nothing of all the other developing economies around the globe.

With the world's central banks in rate cutting mode, commodities remain in the driver's seat.  The signs are hiding in plain sight.

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trade deficit Do you think that since China should be importing more and exporting less it will serve to diminish the U.S. trade deficit with China? Submitted by leonardsimon on Tue, 2008/01/01 - 1:52pm » reply |

Contrarians In a world where everyone wants to be a contrarian, investors are looking to go against every trend that they deem as an overcrowded trade. That trading mentality can prove very dangerous. It appears to me that because commodities have been in a bullish secular trend for some time now, many are now calling for a top in the asset class. In this case however, the ride may have a long way to go. Submitted by Michael Pento on Tue, 2008/01/01 - 1:32pm » reply |