Save Five Yuan on Imported CDs!

[That’s US$.36, by today’s exchange, if you’re paying with greenbacks.]

Yesterday China announced that it was reducing the tariff on imported CDs, DVDs, and other “published electronic media” from 17%, to 13% – backdated to September 15.

If, as numerous media outlets reported last year, the average wholesale retail price for a US-manufactured “new release” DVD [as sold to WalMart] is US$17, then Chinese consumers can expect to save approximately 10 yuan (or US$.78). And if the price of a new release wholesale CD (as sold by Universal Music Group, the world’s largest record company) is still US$9.09 – US$12.02, then Chinese consumers can expect to save approximately 5 yuan – 6.4 yuan (or US$.36 – $.48).

Of course, all of these numbers assume that Chinese importers and retailers will pass along their tax savings to consumers.

And thanks to China Daily, we know just how much tax savings is being talked about: roughly US$1.2 million on US$30.79 million in imported (in 2006) electronic published media. Obviously, this will do nothing to reduce China’s multi-billion dollar trade deficit with the United States (which is the major exporter of these products), despite China Daily’s suggestion that the tariff reduction is designed to help with the balance of payments problem. Which it won’t, if only because the price of most pirate CDs [5 yuan] and DVDs [7 yuan] is less than the assumed tax savings that I calculated above.

I’d be inclined to believe that there was some sincerity in this tariff reduction on a product-line arguably facing obsolescence … except for the fact that yesterday China also announced that it would maintain its import tariff quotas on cotton and wheat – which just happen to be two of the largest US exports to China, by volume and (multi-billion dollar) value. Now, whether or not the two actions were related – that is maintaining agriculture tariffs while reducing CD and DVD tariffs – is well beyond my knowledge. Still, inadvertent or not, the two actions strike me as an interesting insight into how seriously China takes the idea of tariffs as contributors to trade deficits.