Question 21M.2.SL.TZ0.1b
| Date | May 2021 | Marks available | [Maximum mark: 4] | Reference code | 21M.2.SL.TZ0.1b |
| Level | SL | Paper | 2 | Time zone | TZ0 |
| Command term | Explain | Question number | b | Adapted from | N/A |
China’s trade reforms
- The Chinese government has announced a set of free trade measures, including lower import tariffs on cars, soybeans and pharmaceuticals, in an attempt to end a trade war with the United States (US).
- The US government has long accused China of engaging in unfair trade practices to maintain their current account surplus. The trade dispute between the two largest economies intensified when the US said it would impose anti-dumping tariffs on Chinese steel and aluminium.
- The trade war with the US comes at a bad time given the slowdown in China’s domestic demand. In recent years, China’s economic growth has relied less on investment and exports and more on consumption expenditure.
- Producers of many Chinese manufactured goods currently benefit from protectionist measures. In particular, imports of industrial equipment, medical devices, tractors and vehicles are subject to high tariffs.
- Automobile production capacity in China is growing. However, the domestic market is becoming oversupplied, with more cars being offered for sale than Chinese consumers want to buy. For this reason, Chinese car manufacturers are seeking to export their cars to other markets. They are therefore eager to see reduced trade tensions as increased US tariffs would make it harder to export Chinese cars to the US.
- Some Chinese car manufacturers are already focusing on adding advanced capabilities to their cars in order to be more competitive in global markets. China is increasing its efforts to become a world leader in self-driving cars. These will be intelligent cars that will improve transport efficiency and meet energy-saving and emission-reduction targets. Many believe that Chinese companies are so innovative that they no longer require protection from international enterprises.
- However, many Chinese firms remain dependent on imported factors of production. Approximately 30 % of Chinese exports are manufactured using imported equipment and components. The reduction of tariffs would therefore lower prices not only for producers but also for consumers of Chinese goods.
[Source: According to a report on ResearchAndMarkets.com. China’s Auto Revolution, 2018 - China Poised to Become Major Auto Exporter. Available at: https://www.prnewswire.com/news-releases/chinas-auto-revolution-2018---china-poisedto-become-major-auto-exporter-300720917.html [accessed 28 September 2018]. Source adapted.]
Using an international trade diagram, explain how US tariffs could affect the export of Chinese steel and aluminium to the US (paragraph [2]).
[4]
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
The use of P and Q on the axes is sufficient for a demand and supply diagram. The world supply curve may be labelled Sw, or Sworld or SChina. A title is not necessary.
As for past questions on tariffs, the diagram was generally correctly labelled and explained but sometimes came with a lot of unnecessary information (such as the government revenue and welfare losses). Nonetheless, the most crucial piece of information, which was necessary to explain why Chinese exports would decrease — namely, that the price received increased — was sometimes missing. Another common problem was the absence of label for the "world" supply curves (Pw and Pw + tariff are not sufficient).
