Monday, September 14, 2009

Tires and Chickens

Is protectionism about to kick into higher gear?

BEIJING -- China indicated it would restrict U.S. imports of chicken and auto products and demanded trade talks after Washington's move to slap punitive sanctions on Chinese tire imports, raising tensions in ahead of two planned meetings between the countries' leaders.

Many observers in China say ties between the nations should remain unharmed, noting that China's measures could limit imports in two areas that it already tightly controls -- and thus might not have a huge effect on U.S. exports. But the measures add to worries about trade protectionism amid rising unemployment around the world.

Citing a jump in Chinese imports, the Obama administration said Friday it would impose stiff tariffs on Chinese-made tires for the next three years, invoking a section of trade law that China agreed to as a condition for its joining the World Trade Organization in 2001. The move essentially would cut off the source of nearly 17% of all tires sold in the U.S. last year and hit cost-conscious consumers particularly hard, as retailers will have to find alternative sources for the lower-end tires that make up much of what China sends to the U.S.

Beijing responded quickly. Sunday, its Ministry of Commerce said it was starting antidumping procedures against U.S. exporters into China of chicken and auto products. It said it had received complaints from local producers that the U.S. products were being dumped in China at below-market prices. The ministry denied that the move, which could lead to sanctions, was protectionist.

"China has consistently opposed trade protectionism, and the country's actions since the financial crisis have reflected this stance," the ministry said on its Web site. "China is willing to continue to act in accordance with countries around the world to push forward the world's economic recovery."

Read On
The end of the article quotes some observers and analysts who say that this spat isn't that big of a deal and is, in fact, inevitable given the state of the world economy. I can see where this point of view is coming from. It's understandable that US politicians are feeling pressure from unions and other groups dissatisfied with what is going on these days and feel like they have to act.

It'll be interesting to see whether this is a one off event (or just a series of small disagreements) or the beginning of a larger trade war.

I don't think it'd be wise for the US to try to ramp things up here. Sure, the economy sucks and there are a lot of people who'd love to see Chinese products blocked from entering the country. But I think that closing down free trade right now is going to make things much worse than they already are.

Personally, I'd rather not live through a reincarnation of Smoot-Hawley.


George said...

I actually just read this article on the WSJ last night, and thought something very similar, ie "I wonder how well politicians in the US remember that fateful act legislation geared to "protect" American from those scary foreigners?"

Good blog post.

bomlat said...

Actualy,the US tariff will put eliminate just the advantage from the undervauluated yüan,so even it is not a real punishment.

Adn the Smoot-Hawley has been in place for 10 years,but the neme of it today is "fixed yüan-$ exchange rate"

The interesting things will happen when the US will put tarif onto the Chinese car parts as an answer for the counter-tarif.
End of the multinational supply chain.
Nice new world.

Ramesh said...

Understandable the action from the US, and some amount of letting off steam is good. But the US will come back to a mostly free trade situation, I think. But the Chinese reaction is so typical. Every act by any other country is taken as a personal affront and retaliation is immediate. China would do well to let some things go and not react to every single move by every country.

Anonymous said...

"the Chinese reaction is so typical. Every act by any other country is taken as a personal affront and retaliation is immediate. China would do well to let some things go and not react to every single move by every country."

Hey, I was gonna say that!... well put Ramesh.