[Image above] Credit: Jason Samfield; Flickr CC BY-NC-SA 2.0
Successful negotiations between United States President Barack Obama and Chinese President Xi Jinping are setting the stage for the World Trade Organization to slash tariffs on an expanded selection of high-tech products, including semiconductors.
According to the Wall Street Journal, “The new technology deal would include 200 different tariff categories. Among the products that would see tariffs eliminated are next-generation semiconductors, which now have tariffs as high as 25%; magnetic resonance-imaging, or MRI, machines, which face tariffs of up to 8%; and GPS devices, which also have tariffs as high as 8%, the U.S. said.”
Obama and Jinping agreed on those 200 products during discussions happening in China this week at the Asia-Pacific Economic Cooperation summit. The agreement is part of negotiations surrounding an update to the Information Technology Agreement, a global trade agreement that details which tech products are excluded from tariffs.
Although the economics of tariffs is a complicated subject (and one I will not pretend to have any knowledge of), the general idea is that tariff reductions should remove barriers to global trade, increasing competition and decreasing product prices. (For a more in-depth analysis regarding tariff reduction effects and the ITA, see this paper over here.)
The ITA was implemented almost two decades ago, at a time when many current high-tech goods were nonexistent or less widespread than they’ve become today—meaning that an update is long overdue. Talks have been underway to update the ITA for a few years now, but little progress has been made up until now.
While the progress so far is positive, this is only the first step towards slashing tariffs. The additions to the ITA will next need to be approved by the dozens of other economies that contribute to the ITA and by the WTO, which will meet next month in Geneva.
According to the WTO, facilitating trade in general is a big business: “The benefits to the world economy are calculated to be between $ 400 billion and $1 trillion by reducing costs of trade by between 10% and 15%, increasing trade flows and revenue collection, creating a stable business environment and attracting foreign investment.”
The semiconductor industry in particular is a huge—several hundred billion dollar—market, led by giants like Intel, Samsung, Qualcomm, Texas Instruments, and Toshiba. So, in essence, there’s a lot of money on the line here.
What do you think tech tariff reductions would mean to you and your business?