Question 21M.2.SL.TZ0.c
| Date | May 2021 | Marks available | [Maximum mark: 4] | Reference code | 21M.2.SL.TZ0.c |
| Level | SL | Paper | 2 | Time zone | TZ0 |
| Command term | Explain | Question number | c | 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 a demand and supply diagram, explain how reduced tariffs on “imported factors of production” would affect the price of Chinese goods (paragraph [7]).
[4]
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
The vertical axis should be price or p. The horizontal axis should be quantity or q. A title is not necessary.
This question was generally well attempted. Most candidates could make the connection between imported inputs and the supply curve of final goods. Some candidates did not read the question properly and used an AD/AS diagram instead of a simple demand and supply diagram. The macroeconomic diagram was not accepted.
