How Will the Implementation of Zero Tariffs Affect Employment in China?

• Author: Chengwei Zang,Qingyi Su
• DOI: http://doi.org/10.1111/cwe.12324
• Published date: 01 March 2020
• Date: 01 March 2020

©2020 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 123–142, Vol. 28, No. 2, 2020

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*Qingyi Su, Senior Research Fellow, Institute of World Economics and Politics, Chinese Academy of Social

Sciences, China. Email: suqy@cass.org.cn; Chengwei Zang (corresponding author), Postdoctor, Institute of

World Economics and Politics, Chinese Academy of Social Sciences, China. Email: zangcw@cass.org.cn.

This work was supported by the National Social Science Fund of China (No. 16CGJ001). We are grateful to

Yongding Yu, Hong Song, Yan Dong and Qiyuan Xu for their helpful comments and suggestions. This paper is

part of the research project “Promoting the establishment of long-term and stable bilateral economic and trade

relations between China and the US”initiated and funded by the Shanghai Pu Shan Foundation.

How Will the Implementation of Zero Tariffs Affect

Employment in China?

Qingyi Su, Chengwei Zang*

Abstract

This paper studies the employment effect of China’s possible implementation of zero

tariffs by comparing China’s most-favored-nation tariffs and the tariff schedules of

China’s signed free trade agreements (FTAs) with the tariff concessions in a typical

high-standard FTA. It nds that there is a large gap between China’s current tariff status

and a high-standard FTA, and the implementation of zero tariffs in China would have a

signicant negative impact on employment in some industries. However, the employment

effect of implementing zero tariffs is heterogeneous. Analysis at the industrial level

shows that, although employment would drop in a few industries as a result of the

implementation of zero tariffs, more jobs would be created in most industries. The

overall employment effect of a zero tariff policy would be positive, creating an estimated

8.05 million jobs in China. Therefore, China should consider the adjustment costs

brought by the labor movement in different industries and introduce relevant policies to

deal with the employment shocks caused by zero tariffs.

Key words: competitiveness, employment, free trade agreement, zero tariffs

JEL codes: F13, F14, F60, J21

I. Introduction

Tariffs are the most basic and easily measured form of trade costs. Since the establishment

of the General Agreement on Tariffs and Trade (GATT) in 1947 and successive rounds

of negotiations, with corresponding tariff reductions carried out independently by many

countries, worldwide tariff levels have been successfully reduced (Bown and Irwin,

2015). Currently, tariff levels in developed countries are generally low. In 2018 the most-

Qingyi Su, Chengwei Zang / 123–142, Vol. 28, No. 2, 2020

©2020 Institute of World Economics and Politics, Chinese Academy of Social Sciences

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favored-nation (MFN) simple average tariffs for non-agricultural products in the EU,

Japan and the US were 4.2, 2.5 and 3.1 percent, respectively. China’s tariff levels have

declined to a relatively low level since 1978; for example, in 2018, China’s MFN simple

average tariff for non-agricultural products was 8.8 percent (WTO, ICT and UNCTAD,

2019), reecting the trend of cutting tariffs in developing countries.

Nonetheless, there is room for further reduction in tariff levels in various

countries. Due to the impasse of the Doha round of trade talks in the World Trade

Organization (WTO), many countries have begun to reduce their tariffs by signing

free trade agreements (FTAs). Thus, zero tariffs have become a way to achieve high-

standard FTAs. The Trans-Pacific Partnership (TPP) Agreement, led by the Obama

administration, focused on a commitment to drastically lowering tariff levels on goods

to zero. Following the successful conclusion of the negotiations, the tariffs that 11

member countries imposed on 18,000 products imported from the US1 eventually reach

a zero-tariff rate of 99 percent (Oliver, 2015).2 Despite the Trump administration’s

withdrawal from the TPP, on 25 July 2018, Trump and European Commission President

Jean-Claude Juncker committed to implementing zero tariffs, zero non-tariff barriers

and zero subsidies in the non-automotive product sector in the joint US–EU statement

following President Juncker’s visit to the White House.3 This shows that zero tariffs are

also a major focus of the Trump administration’s trade negotiations.

Since the China–US trade war began in 2018, both parties have undergone long and

arduous high-level economic and trade negotiations and the rst phase economic and

trade agreement was signed on 15 January 2020. Although the Trump administration has

not yet appealed to China for a zero tariff negotiation, there are no guarantees that the

US will not request this in the future, given that the implementation of zero tariffs on US

products could greatly boost US exports to China and thereby reduce US trade decit.

The Trump administration has always considered fair trade as a fundamental part of its

trade policy. Moreover, given that zero tariffs have become a trend for high-standard

FTAs to follow, even if the rst phase of the Sino–US trade agreement does not involve

the implementation of zero tariffs, it is inevitable that this will need to be dealt with in

future Sino–US trade negotiations. For this reason, zero tariffs should be pursued as a

1See https://ustr.gov/sites/default/les/TPP-Guide-to-18000-Tax-Cuts.pdf (online; cited December 2016).

2See https://www.piie.com/research/piie-charts/how-quickly-are-tariffs-eliminated-tpp (online; cited December

2015).

3See https://europa.eu/rapid/press-release_STATEMENT-18-4687_en.htm and https://www.whitehouse.gov/

briengs-statements/remarks-president-trump-president-juncker-european-commission-joint-press-statements/

(online; cited July 2018).