693.003/865: Telegram

The Minister in China (MacMurray) to the Secretary of State

885. Legation’s 875, December 13, 6 [2] p.m. The following is major portion of a report on the new tariff schedules, dated December 19th, which is being forwarded by the commercial attaché to the Department of Commerce:

“Political rather than economic considerations dictated the schedules in China’s new tariff. From an economic viewpoint the new tariff may be described as distinctly unscientific. Items of undisputed luxury character are assessed lower duties than are certain important necessities. Little or no cognizance has been taken of the theory of utilizing a tariff as a means of encouraging domestic industry. The tariff imposes an unfairly heavy burden upon American trade. Furthermore there are no accompanying assurances that the import trade will be relieved of any of the present burdensome internal taxes, in lieu of the increased import duties.

Kerosene, one of China’s more important items of import and now generally recognized as a necessity, is assessed a higher duty than any other article in the tariff with the exception of tobacco, which in addition to a 7½ percent import duty is taxed a 32½ percent excise or a total tax of 40 percent. Kerosene is taxed at about 31 percent while champagne and liquors are subjected to a duty of 27½ percent and light wines and beer 22 percent. In this connection it is well to note that the bulk of China’s imports of both kerosene and rolled tobacco are of American origin. Awabi, a Japanese sea product, which is found only on the menu of the wealthy in China, is permitted to be imported under a duty of less [Page 397] than 10 percent, figured on present-day values, while raisins, which are imported in large quantities from America, are subjected to a duty which, calculated on present-day prices, is probably about 30 percent.

With a sad dearth of railway mileage in China the motor bus has come in many sections of the country to take the place for passenger purposes of the railway. Naturally the cheaper the bus the cheaper may be the passenger rates. Furthermore it is not yet possible to build roads in the interior of China which can stand heavy traffic. This means that the most economic type of bus is that assembled in China from the chassis of such cars as Ford, Dodge and Chevrolet. The new tariff imposes a duty of [22½] percent on all motors and accessories except bus[ses] with a minimum seating capacity for 12 persons and completed trucks of over one ton capacity, for which new tariff is only 12½ percent. By this method American companies are discouraged in promoting assembly plants in China, and Chinese are discouraged in the buying of chassis and accessories and assembling in China.

During the years 1927 and 28 there sat in China a commission for the revision of the valuations in China’s import tariff of 1922. It concluded its labors in July 1928. The chairman of this commission was a Chinese. Thirteen [nations] were represented. In compiling the new tariff the Chinese totally ignored the findings of this commission and elected to use values as fixed by a similar previous commission which sat in 1922 and used 1921 market values as the basis for the revision made at that time. Hence values as they appear in the new tariff are those of the 1922 values based upon Shanghai wholesale market values of 1921, whereas 1927–28 commission based its revision upon the 1925 Shanghai wholesale values.

The new tariff schedules are divided into seven classes, namely: 7½ percent, 10 percent, 12½ percent, 15 percent, 17½ percent, 22½ percent, and 27½ percent. It was presumably to be a 12½ percent tariff with certain necessities on lower schedules and certain commodities of patently luxury character in the upper classes. However, the new tariff departs radically from this theory in a number of important particulars among which were those as enumerated above. It is patent that it places the heavier burden of the increased duties upon American trade not because the economic situation in China warrants, but because generous good-hearted America would probably stand for that which would occasion an outburst of protest from certain other nations had they been placed in a similar situation. To what extent American trade will be adversely affected by this new tariff is difficult to prophesy but it has within it certain elements of unfairness to American trade which are bound to result unfavorably as contrasted with that which effects [affects] the trade of other countries.

It is a significant fact that nothing has appeared in any official documents or in press in connection with this new tariff which may lead any one to infer that, when it becomes effective, internal taxes on trade, for instance as likin, transit dues, destination taxes, consumption taxes, and other similar excises, will be abolished or materially reduced. It was presumed when the foreign powers signatory [Page 398] to the Washington Conference treaties and agreements met in Peking during the year 1926 that when China’s assumption of tariff autonomy on January 1, 1929, went into effect it would be accompanied with some definite arrangement for the abolition of those internal taxes in the event the import schedules were materially increased. Unless there is a substantial reduction in the internal taxes on trade, it would seem that the additional import duties, will with certain commodities increase the costs to such an extent as appreciably to lower the quantities imported.”

  1. Telegram in six sections.