Saturday, September 12, 2009

Trade War?

Is this the first step in what will become a full-fledged trade war?

The Obama administration will put steep import duties on Chinese passenger and light truck tires, responding to what the U.S. International Trade Commission determined to be a surge of Chinese tire exports.

The U.S. has announced a 35% import tariffs on tires from China, which would decline to 30% in the second year and 25% in the third.

At the risk of throwing a major wrench in global trade, Obama again reaches out to provide government muscle to prop up his union allies.

United Steelworkers backed the Obama administration's decision to impose tariffs on Chinese tires. "The President sent the message that we expect others to live by the rules, just as we do," USW International President Leo W. Gerard said in a statement.

"For far too long, workers across this country have been victimized by bad trade policies and government inaction. Today, President Obama made clear that he will enforce America's trade laws and stand with American workers," Gerard said.

The USW’s original Section 421 complaint called for a quota system that would have limited the number of passenger tires that could be imported from China. The labor union claimed that rising imports from China had caused the loss of some 5,000 tire plant jobs in recent years, according to Tire Review.

China, of course, warned of the serious implications of this act.

"China strongly condemns this grave act of trade protectionism by the U.S.," the spokesman for China's Ministry of Commerce, Yao Jian, said in a statement.

“It is an abuse of the trade remedy measures and made an extremely bad start against the backdrop of global financial crisis,” China’s statement said. China will reserve “all legitimate rights, including referring the case to the WTO.”

"This step not only violates the rules of the World Trade Organization, it is also contrary to the relevant commitments that the United States government made at the G20 financial summit," said Yao.

Yao said the duties may result in a "chain reaction of trade protectionist measures that could slow the current pace of revival in the world economy."

"The Chinese government will continue taking the necessary measures to support the tire industry," he said


  1. Currently 17-20% of China's exports go to the USA.
    China accounts for 20-23% of US exports.

    6-8% of China's imports come from the USA.
    16-18% of US imports come from China.

    China has a lot more leverage in this situation.

    Tariffs on Chinese goods will encourage China to decrease its trade dependence with the USA. Americans cannot risk that, for when China no longer needs the US market for exports, China won't be forced to buy up or renew purchases of US debt. When China no longer buys US debt, the US will have to monetize even more.

    This is by for the dumbest idea ever conceived of by the Obama administration.
    Of course this would be a smaller problem if we had a balanced budget and did not need to issue so much debt.

  2. Agreed.

    The entire U.S. posture towards China makes no sense. The Obama and Bush administration have also sought to get the Chinese to stop propping up the dollar.

    Although propping up the dollar makes no sense for the Chinese, it has been a major factor in keeping price inflation low in the U.S.

  3. I'm glad they've learned from the mistakes made during the "great depression I"

  4. It's a shame the Chinese didn't take the opportunity to call out the Obama administration for persecuting the tire buying public for benefit of a politically privlaged few. Of course had they done that, they would look hypocritical when they do the same thing to someone else down the line. 'Politics as usual.