Trade And Welfare Effects Of Tariff Concessions And Exchange Rate Reform

Since the beginning of the 21st century,China has accelerated its pace of opening up to the outside world and has assumed a new economic pattern.On the one hand,since entering the WTO in 2001,China has effectively fulfilled its commitment to tariff reduction and lowered the overall tariff level from 15.3%to 7.5%.On the other hand,China announced the adjustment of the exchange rate system in July 2005,which changed the exchange rate system from the a single pegged exchange rate system to a managed floating exchange rate system,gradually pushing forward the reform of the exchange rate marketization.Especially after the Third Plenary Session of the 18th CPC Central Committee,the reform aimed at the marketization mechanism of the RMB exchange rate was further accelerated,and a fully flexible exchange rate formation mechanism was gradually formed.The RMB exchange rate system was accelerated to a more flexible exchange rate system.Under the open economic structure in which tariff reduction and exchange rate reform are superimposed in China,foreign trade has achieved leap-forward development,trade volume has grown rapidly and trade structure has been gradually optimized.Also,tariff reduction and exchange rate reform have also produced a great deal of impact on the residents’ welfare.Therefore,based on the basic framework of the new open economy macroeconomics(NOEM),this paper uses the dynamic general equilibrium model to clarify the macroeconomic effects of tariff reduction and exchange rate regime reform,and on the basis of this,combines the actual situation of tariff reductions and exchange rate reform,uses parametric simulation and vector autoregressive(VAR)model to make a further empirical analysis of the impact of tariff shocks on trade and residents’welfare.The empirical results show that China’s tariff reduction in the past two decades has significantly increased the level of foreign trade and residents’ welfare.In addition,after the exchange rate system reform in 2005,the managed floating exchange rate system expanded the scope of exchange rate fluctuations,thereby enhancing exchange rate fluctuations.The adjustment offsets the impact of tariff fluctuations to some extent,so the promotion of trade and welfare during the period is smaller.Based on the above results,this paper proposes corresponding tariff policy and exchange rate policy recommendations to promote the coordination and a better serve for the macro-control of the government,further promote the development of China’s foreign trade and improve the overall welfare level of residents.