http://auto.ifeng.com/news/domesticfinance/20111215/731107.shtml ）

Given that these cars are manufactured in some important election battle states, the Obama administration’s action in an election year is clearly political, but I still want to applaud Obama’s effort to raise awareness of tariffs on car imports to China.

The automobile industry in China is still heavily protected behind a “tariff wall” even though this wall has come down significantly since China’s entry into the WTO. Cars imported to China face a tariff duty of at least 25 percent. In comparison, American duties on cars imported into the US are only 5 percent. Taking into account the 17 percent of VAT and other levies, imported cars and foreign-brand cars produced in China are substantially more expensive than the same type of cars in the United States. A new Cadillac SLS made in China will set a Chinese household back between $71,000 and $110,000, without the anti-dumping duty. A better performing Cadillac STS, on the other hand, costs an American household between $47,000 and $56,000.

Chinese households are not wealthier than American households. It makes absolutely no sense to me that a less wealthy Chinese consumer should pay more than a much wealthier American consumer for the same American-made products. Repealing the Chinese anti-dumping duties is a first step.

Removing the Chinese tariff wall will carry even bigger benefit. It will benefit thousands of American workers making cars in Michigan and Ohio, as Chinese consumers buy more cars from American car manufacturers. It will benefit thousands of Chinese auto parts companies, employing millions of Chinese workers that supply Detroit and Toledo auto plants. Equally important, it will benefit millions of aspiring Chinese consumers.

A tariff is effectively a combination of two policy tools：a tax on consumer and a subsidy to producer. As foreign automobile imports are stopped by the tariff wall, competition in the Chinese auto market becomes less intense. Car producers in China are thus able to charge higher prices. Millions of Chinese consumers have to take more money out of their pockets as if they are taxed for buying cars to subsidize a few producers in China.

So, who are the main beneficiaries of the high Chinese tariff wall? Mostly, the foreign auto companies and their partnering Chinese State Owned Enterprises（SOEs）. The top ten car manufacturers in China are all joint ventures between foreign multinationals and the Chinese SOEs, except three：BYD, Cherry and Geely. The top five automakers are：Shanghai Volkswagen, FAW Volkswagen, Shanghai GM, Beijing Hyundai, and Dongfeng Nissan. The top ten bestsellers in 2011 in China all carry a foreign brand except a budget car made by Tianjin Xiali. These foreign multinationals and their Chinese SOEs are able to sell cars at higher prices and are racking up hundreds of millions of dollars in profits behind the tariff walls at the expense of buyers, including millions of Chinese households and numerous small Chinese companies. In 2010, China became the largest market for GM, with sales of 2.35 million cars, compared with 2.21 million in the U.S. In 2011, GM made a record net income of $7.6 billion, of which 20 percent was contributed by its Chinese joint venture. With high tariffs on car imports, millions of Chinese consumers who are struggling to make ends meet are taxed to subsidize wealthy shareholders of multinational companies as well as cash-rich Chinese SOEs. I call this a “rob-the-poor-to-pay-the-rich policy”.

Some argue that this tariff is necessary to nurture the indigenous Chinese carmakers before they are competitive enough to face those global auto giants. They point out that Geely, a Chinese indigenous car maker, would have gone under without tariff protection. I believe that this is not true. China’s Geely started to manufacture cars in 2001, the year China entered the WTO. Between 2001 and 2011, the Chinese tariff on automobiles was reduced from 100 percent to 25 percent. During the same time when tariffs were reduced, Geely grew from a no-name to a household brand, selling over 300,000 cars a year today, not much less than Honda in China. In 2010, it acquired Volvo Cars from Ford. Further, if support of indigenous auto makers is the objective, direct subsidy to Geely is probably more efficient than a tariff. It makes no sense to tax consumers and subsidize all carmakers, including more efficient Volkswagen and GM in order to support less technologically advanced Geely. The bottom line：The Great Wall of China never worked in history to make China stronger—not even able to protect China from foreign powers. The same is true of the “tariff wall” created–it would not make an industry more competitive. Those who do not believe this just need to take a look at the Brazilian or Indian auto industries.

Some want to keep high tariffs as a policy to alleviate suffocating traffic jams in China’s big cities—which might make sense. Anyone who has visited Beijing recently would probably find Los Angeles traffic to be preferable. As of now, car ownership in China is actually quite low–it is only 47 per 1000 persons. Comparatively, car ownership is 808 in the United States, 589 in Japan, and 379 in Korea, per 1000 persons. Thailand, a country that has a comparable per capita GDP as China, has 165 cars per 1000 persons. China is now the largest auto market in the world, selling 18.5 million cars a year, including 14.5 million passenger cars and 4 million buses and trucks. Imagine what would happen if China reaches the same car ownership as Thailand? But I would still argue against keeping the tariff wall.

There is no reason to subsidize Volkswagen, GM, Hyundai, or Nissan in order to solve the traffic jam problems in Beijing or Shanghai. If China wants to have less congested roads, there are other better ways to achieve this objective. Increasing the levy on license plate or downtown parking fee is more efficient. Providing more options to motorists to divert traffics is another. A tariff wall which taxes consumers and subsidizes producers at the same time is not a good method to discourage cars on roads.

Removing the tariff wall has an additional benefit. This will force the carmakers in China to be more competitive. Multinational companies will have to bring the most updated designs, instead of selling the last-decade models to Chinese consumers. Indigenous Chinese car companies will not be able to hide behind the tariff wall while simultaneously copying foreign cars to fool Chinese drivers. They will have to be innovative in order to survive the competition.

Chinese households deserve to enjoy better cars at lower prices. They should have the choices of buying cars made in China or made in America, by either Shanghai GM or Detroit GM. Obama’s action to take China’s anti-dumping duty on cars to the WTO should be considered as a first step to generate public attention to the still high Chinese tariff wall. Removing this wall is to the best interest of millions of Chinese households. It is consistent with the grand strategy of the Chinese government to increase domestic consumption. And this will for sure win China a lot of friends in politically influential states in America. So, to China, I say, “Please tear down this wall. Your people deserve a better life.”