New Chinese Taxes May Explain Export Slowdown
from the that's-all? dept
Last week we linked to a story about slowing export growth from China and wondered what it meant about both the US and Chinese economies. Obviously, slower trade could be a reflection of a weakening economy, although it also seemed possible that the mounting concerns over the quality of Chinese goods could be a contributing factor. Today, the Wall Street Journal notes the same trend, but offers a much more sanguine perspective. The claim is that the Chinese government has instituted a new tax on exporters, which will kick in later this year. As such, manufacturers have tried to front-load their sales, squeezing as much of their annual orders out before the tax comes into place. The Chinese government has tried hard in recent years to slow down the economy, which has been on fire. While this tax may result in a temporary slowdown, it’s unlikely that it will do much to alter the fundamental economic equation of high American demand for cheap supply from China.
Filed Under: china, manufacturing, taxes, trade
Comments on “New Chinese Taxes May Explain Export Slowdown”
Not Tech and not dirt.
does not compute
The slowdown in growth has already been noted. The tax change is predicted to cause channel stuffing before the implementation date. Rather than see a slow down in advance of the tax implementation, we should have seen a spike caused by the channel stuffing.
All of which proves once again that if you laid all the economists in the world end to end they still would not reach a conclusion.
Does Not Computer
“All of which proves once again that if you laid all the economists in the world end to end they still would not reach a conclusion.” I love this comment — well said Joe!
The more interesting question
Is why is the Chinese government upping the taxes on exporters?
“While this tax may result in a temporary slowdown, it’s unlikely that it will do much to alter the fundamental economic equation of high American demand for cheap supply from China.”
As the WSJ points out, in the long term, the yuan needs to rise against the dollar to balance out that trade deficit. Then the Chinese supply isn’t so cheap.
Some economists say the Chinese government’s interventions on the currency markets to keep the yuan cheap _ printing yuan and buying dollars _ amounts to an artificial subsidy on exports, and the U.S. should retaliate by imposing tariffs.
The Chinese government figures, better to impose those tariffs ourselves rather than let the Americans do it.
In summary, first it ensures a large trade deficit with the U.S., strengthening the Chinese domestic manufacturing base, then it scoops up the proceeds with higher taxes.
Now it holds lots of dollars and lots of yuans, and Communist Party members are in the catbird seat.
For a ‘Communist’ state, China’s current industrial trade policies sure look more like British Mercantilism or German Fascism than anything else.
Weird...
Well… It can’t rain all the time: you can’t have a perpetual economic growth… Maybe is a temporary situation or the tax change is waiving the initial period, but I think China has some more years of unprecedented growth (they are growing by 10% every year for the last 12)…
Though, for sure, one day they’ll have to stop growing (that is common sense: you can’t grow all the time)…
Regards from Spain,
Paquito.
http://paquito4ever.blogspot.com
Taxes wont slow it down?
“While this tax may result in a temporary slowdown, it’s unlikely that it will do much to alter the fundamental economic equation of high American demand for cheap supply from China.”
EBIT – earnings before interest and taxes
Taxes are the reason so many manufacturing jobs moved overseas before demand was even present there- the cost of labor is a very small portion of profits compared to taxes for many industries(especially high tech). So paying 28% on gross profits in the US compared to 10% in Thai Wan when labor was only 5% of total cost was a slam dunk for many companies to move. That and favorable environmental, health care, union, legal laws made it possible to compete with countries who moved their non-union operations state – side. Trimming taxes is exactly what turned Puerto Rico around (see operation Boot Strap in Wiki for proof that this works). Now that the value of the US dollar is down, taxes are cut, and unions are waning many companies are starting to expand in the states again because they can compete. The author’s dismissal of the importance of taxes is both disappointing and perhaps ignorant of how business looks at the bottom line in order to keep from going under when competing in a worldwide market.
Re: Taxes wont slow it down?
So how do you explain the fact that European manufacturing companies compete in the world, even though taxes there have always been much higher than in the USA?
There’s a lot more than taxes to the Pueto Rico story than you mention – huge incentives.
Corporations want to be treated as though they are actual citizens – except they don’t want to pay taxes, and they have no loyalty to any country.
Corporations are created by humans to further the goal of making money. As Buckminster Fuller said in his brilliant essay The Grunch of Giants, “Corporations are neither physical nor metaphysical phenomena. They are socioeconomic ploys – legally enacted game-playing…” Corporations are non-living, non-breathing, legal fictions. They feel no pain. They don’t need clean water to drink, fresh air to breathe, or healthy food to consume. They can live forever. They can’t be put in prison. They can change their identity or appearance in a day, change their citizenship in an hour, rip off parts of themselves and create entirely new entities. Some have compared corporations with robots, in that they are human creations that can outlive individual humans, performing their assigned tasks forever.
———
I have no problem with the above – but let’s just not kid ourselves.
Re: Re: Taxes wont slow it down?
So how do you explain the fact that European manufacturing companies compete in the world, even though taxes there have always been much higher than in the USA?
I think if you look into it you will find that the higher European taxes tend to be value added taxes on consumers, rather than taxes on corporations. That, combined with massive European subsidies for some corporations (hello Airbus) explains why the Europeans can compete in the world markets.
Re: Re: Taxes wont slow it down?
European manufacturing companies? How many are actually left? Philips sold to KKR and Infineon is slowly disintegrating…what do you have left? BMW, Daimler…same story european manufacturing is on a steep slide out of the country precisely because of taxes. You cannot be serious…what is their unemployment rate at? Officially 10% but really more like 20%- because they dont count people in ‘college’ or on maternity leave and after awhile stop counting them. I spend about 6 weeks a year over there.
Operation bootstrap took place in the 60’s…they have since moved up their tax % and now are suffering similar high unemployment. Like it or not tax % and unemployment appear to have an inverse relationship. The higher the taxes the lower the unemployment.
Well I'm someone who isn't buying goods from China
Well I’m someone in the US who isn’t buying goods from China.
I may not be able to completely eliminate my consumption of goods from China because they are in a lot of things that are not labeled clearly but I am looking at the labels now. If I find that it’s made in China I look for another product in the category that’s made in another country.
There have been too many problems with goods from China and a complete lack of control on the quality of those goods exported. If I have to pay 10 cents more a bushel for wheat grown in my own country at least I don’t need to worry about that wheat killing me or my wife and two sons.
Re: Well I'm someone who isn't buying goods from C
Don’t be so sceptic.. Be lucky because someone is importing wheat from China to your country.. otherwise you would be paying much more than “10 cents more”…
Slow Economic Growth
The claim that the economic growth is taking place because of a FUTURE tax is ridiculous. They would increase output before the tax kicks in, therefore, if the tax had anything to do with the output, the present output would be surging, not dropping. The “Wall Street Journal” writers are smarter than this. Who are they trying to snow? The drop is caused by a drop in demand because of their irresponsible handling of products, and allowing their food products to be tainted. One would wonder if the “tainting” of the wheat germ was simply irresponsible, or deliberate.
Tax is not the only reason for export
Talking with our members (www.acb2b.com.),tax is not the only reason for their import and export. Why do we produce? Why do we trade? Profit, long-term profit. No matter how unfavorable it is, we would still continue to import and export if there is still profit attainable. So even the tax has some negative effects on Ameri-Chinese trades, the capable companies wouldn’t give up. On the contrary, it is a good time to beat the weak one and get a larger part of the market.
US consumption slowing
US consumption has been slowing due to increasing gas prices, declining mortgage equity withdrawals and slowing job growth.
Could be China’s tax on exports has little to do with it.
I hear a lot about China’s economy and the future threats for the rest of the world and for China itself. I must say, I have no reason to believe it. Every generation has its economic forces and you can’t stop a giant. The tax-tool China uses will have no serious consequences on the long run. Guys like the entrepreneurs on http://www.chinasuccessstories.com will find ways to solve every problem as long as the government keeps the borders physically open.