Policy Article

China between External Pressure and Domestic Policy Reforms: In Search of a Balance

Kiel Policy Briefs, 117

The authors reveal that on the one hand China alleviates inward FDI with a clear focus on promoting “quality” FDI with potential positive impacts also on local firms without direct investment relationships with multinational enterprises. On the other hand China lowers Most Favored Nation (MFN) tariffs and simultaneously retaliates against US penalty tariffs. They identify weaknesses of China’s tariff policy which should be removed to avoid trade conflicts with its partners and primarily to foster its own economic transformation. The authors conclude that the escalation of trade conflicts can trigger protectionist measures from China and other countries, thus launching a race to the bottom against openness for international trade and investment.