Define the term trade war indicated in bold in the text (paragraph [1])

Define the term consumption indicated in bold in the text (paragraph [3]).

Using an international trade diagram, explain how US tariffs could affect the export of Chinese steel and aluminium to the US (paragraph [2]).

Using a demand and supply diagram, explain how reduced tariffs on “imported factors of production” would affect the price of Chinese goods (paragraph [7]).

Using information from the text/data and your knowledge of economics, evaluate the impacts of free trade measures on China’s economy.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

The use of P and Q on the axes is sufficient for a demand and supply diagram. The world supply curve may be labelled S_w, or S_world or S_China. A title is not necessary.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

The vertical axis should be price or p. The horizontal axis should be quantity or q. A title is not necessary.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Do not award beyond Level 2 if the answer does not contain reference to the information provided.

Command term

“Evaluate” requires candidates to make an appraisal by weighing up the strengths and limitations.

Answers may include:

• Definition of free trade.

Benefits of reduced tariffs:

• Lower risk of retaliation and trade war (paragraphs [2] and [5])
• The increase in export revenue could help compensate for the decrease in consumption and combat the economic slowdown (paragraph [3])
• Greater choice and lower prices for Chinese consumers and in particular for agricultural producers, provider of medical services who may purchase foreign tractors and medical devices at a lower price (paragraph [4])
• Lower tariffs will reduce import prices leading to lower input costs for firms relying on imported components (potential increase in SRAS) (paragraph [7]) 
• Increased competition from trade and foreign firms may lead to product innovation and greater efficiency (paragraph [6]) 
• More efficient allocation of resources as US and China specialize and trade
• The current account surplus could be eroded (paragraph [1]) and this may prevent currency appreciation hence benefitting exporters (but at the expense of consumers who may see their real income reduced).

Limitations of reduced tariffs:

• Lower tariffs may increase the amount of imports, which could lead to lower AD. This could lower economic growth given the current slowdown in domestic consumption (paragraph [3])
• Decreased consumption of domestic products could lead to (structural) unemployment in the manufacturing sector (paragraph [4])
• There could be an opportunity cost for the government due to the loss of tariff revenue (paragraph [1])
• More competition for Chinese car manufacturers who are currently facing an oversupply and possible impact on domestic employment in the industry (paragraph [5]).

Any reasonable evaluation.

Most candidates scored at least Level 1 on both definitions. 

Many candidates had some idea of what a trade war is but could not structure the definition properly and/or allude to retaliatory actions. 

Most candidates scored at least Level 1 on both definitions. 

Defining consumption also proved challenging with a significant minority explaining consumption through usage rather than expenditure. Many tended to repeat the term in the definition (e.g. consumers' spending). This should be avoided if possible. 

As for past questions on tariffs, the diagram was generally correctly labelled and explained but sometimes came with a lot of unnecessary information (such as the government revenue and welfare losses). Nonetheless, the most crucial piece of information, which was necessary to explain why Chinese exports would decrease — namely, that the price received increased — was sometimes missing. Another common problem was the absence of label for the "world" supply curves (Pw and Pw + tariff are not sufficient). 

This question was generally well attempted. Most candidates could make the connection between imported inputs and the supply curve of final goods. Some candidates did not read the question properly and used an AD/AS diagram instead of a simple demand and supply diagram. The macroeconomic diagram was not accepted. 

Most candidates scored marks in the mid/top range of Level 2 or low range of Level 3. Arguments both for and against the free trade policies were generally well understood and explained, but some responses made minimal effective use of the text. Many candidates assumed that the US and other countries would also adopt free trade policies towards China. While that is a valid assumption, candidates should explicitly state they are making that assumption. 

To reach Level 3, candidates need to use the text and their knowledge of economics to enrich arguments which are already mentioned in the text. This was sometimes done by considering that Chinese exports seem very competitive and may not enjoy much benefits from ease in tensions between China and the rest of the world. At times, candidates brought arguments that did not seem to fit in the context set in the text. In particular, the idea that free trade policies would be detrimental to infant industries in China — a valid point — but went on to identify the Chinese automobile industry as an infant industry. To be considered as effective, this argument should be supported with examples of industries which could be considered as 'infant' in China without conflicting with the information from the text.