Despite promising more market pricing for natural resources last year, China renegaded on that commitment last week as they imposed a tariff on imported coal. As China’s economy has slowed, the Chinese coal industry has been hit particularity hard, with coal prices dropping 24% this year. 70% of Chinese coal companies are operating at a loss this year and they called for government action on their behalf. With higher prices, the hope is these Chinese coal companies will once again operate in the black and continue operating the mines at full capacity.
This announcement is surprising considering China previously removed its coal tariff to ensure the power and steel industry had cheaper access to coal. However, China is “afraid of letting coal miners fail, both because of the thousands they employ and the shadow-banking products they are thought to support” (Wall Street Journal). The coal tariff ranges between 3% and 6% depending on the coal grade, with lower grade coal taxed more.
“Australia and Russia are expected to be hit hardest” by this tariff (Sydney Morning Herald). Australia’s Prime Minister called China its biggest and most important trading partner, so this will certainly hinder those relations. I am surprised China included Australia in this coal tariff, they are pushing for Australia to join the Asian Infrastructure Bank and this will win Beijing no goodwill. Additionally, as Russian relations with the West continue to deteriorate I thought China would try improving their relationship with Russia, not impose tariffs on an already struggling Russian economy.
Sources: Stories in the Sydney Morning Herald, the WSJ, and an Australian publication, the Land.
The infant industry protection of China’s coal tariff appears a bit short-sited. Although coal does employ thousands in China, cheaper products would allow for stronger investment in more sustainable, healthy industries that provide better “international PR” and economic infrastructure.
I completely agree. It seems like a waste of resources for China to prop up growth in the coal industry when that money could be used towards developing an industry of renewable energy. Considering pollution is a major problem in China, it seems counterproductive to take large efforts to support the coal industry in the name of saving jobs/the industry.
China, welcome to the 21st century: you too are now employing tariffs to support industries in decline, as the US did with textiles and steel. Now the politics aren’t clear to me; this is the sort of thing you’d expect of a representative political system — or at least a polity in which popular support is important.
For those who’ve had trade theory, there is another potential motive: a monopsonistic purchaser can try to turn the terms of trade in its favor. However that requires a flexible tariff, one that shifts with the international market price.