By on October 29, 2009

Want more flagging sales? Picture courtesy renovomedia.com

President Obama started a trade war by slapping a 35 percent punitive tariff on imported tires as a big “Thank you” to his friends at the United Steelworkers.  Most industry observers think this was mentally challenged exercise:  Production of cheap tires will be shifted to  other countries. Not a single US job will be created. Jobs will be lost and consumers will have to pay more.

The war is not going away. As a matter of fact, it is heating up.  Not only did China lodge a formal complaint to the WTO. China has told the United States it is launching a trade investigation that could lead to new import duties on autos and sports utility vehicles made by Chrysler, Ford and General Motors, a U.S. industry official confirmed to Reuters.

The action will leave no happy faces with U.S. Commerce Secretary Gary Locke, Trade Representative Ron Kirk and Agriculture Secretary Tom Vilsack, who are in China right now for high-level talks aimed at resolving trade disputes between the two countries.

The man who started the war, President Barack Obama, will visit China in mid-November.

“The documents containing the charges were presented by China to the U.S. government this week, but have not yet been translated. Therefore we are not in a position to comment on the matter at this time,” Steve Collins, president of the American Automotive Policy Council said.

Collins estimates that  the traditional Big Three U.S. automakers export about 9,000 vehicles per year to China. Total U.S. passenger car exports to China — which would also include those made by manufacturers such as BMW and Nissan — were $1.1 billion in 2008.  A nice tit-for-tat. “The value of Chinese tire exports to the U.S. totaled $1.8 billion last year,” writes the Wall Street Journal, “in a market segment worth $16 billion a year.” You don’t buy our tires, we’ll escalate and you won’t sell Escalades.

In the meantime, the war threatens to veer out of control as U.S. textile, steel and some other manufacturers gather sponsors in the Senate and House of Representatives for a bill that would allow the United States to slap anti-dumping duties on goods from countries that “undervalue” their currency.  Obama’s Treasury Department decided this month against formally labeling China as a currency manipulator.

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26 Comments on “Trade War Watch 6: China Escalates Against Escalades...”


  • avatar
    mikeolan

    I don’t care what country they’re made in as long as it’s not China or Russia or another one of them loser countries.

  • avatar
    criminalenterprise

    China weakens the United States with its currency manipulation. The trade imbalance is a natural and unstoppable result.

    China has done very well for itself with this strategy, but the trade relationship must be brought into balance.

  • avatar

    Some 20,25 years ago, I formulated my law of “Wage Death”, akin to the Laws of Thermodynamics related Heat Death.
    I proposed then that in 20-40 years every production line worker in the world will make 20-30% more than the Chinese did then, that wages everywhere would be pretty much the same (wage death). And I’ve seen nothing to change that prediction. It’s an ugly future.

  • avatar
    Spanner77

    Criminal Enterprise,
    If China is “manipulating the Dollar” what precisely is the US Govts response? Ah yes, do precisely sod all and let it go down the toilet without a wimper.
    If you wish to sell your currency worldwide, which is in reality selling your debt (IOU’s) worldwide, then you must accept countries and enterprises ‘trading’ your currency. Selling or buying US Dollars is presumably allowed in a free world so what is the problem with China doing such? None, zippo, nought far as i can see!
    Let’s face it, at the rate the Obama and Bernanke at the Fed are printing your funny money, you can hardly accuse anyone else of trashing your currency. Your primary holders of responsibility for your nations currency are vandalizing it quite nicely all by themselves, let’s leave China out of it.

  • avatar
    Geo. Levecque

    China and the Russian Federation are not Losers imho, the future looks East and also in Russia where decades of “Five year” plans went no where!
    China has lent the USA a lot of Money, last year and also this year, so it come around to see who will be up and who will be down in the Years ahead!

  • avatar
    dwford

    It’s time we stopped worrying about how much consumers are PAYING for goods and time we started worrying about how much workers were EARNING from PRODUCING goods!

    This whole mess has been caused by trying to provide the consumer with the lowest cost goods in all categories, resulting in millions of manufacturing jobs going overseas.

  • avatar
    Robbie

    dwford, Stewart Dean, criminal enterprise: your comments defy all economic logic… (I teach Economics at a top 50 US university)

    Obama’s tire decision seems like an extremely cynical decision on his part to pay unions back for their support; the resulting negative trade consequences may be severe. In most economic models, governments’ hindering of trade is the equivalent of a tax increase.

  • avatar
    OldandSlow

    Off topic – but price of cutting costs to the nth degree is this:

    http://www.chinahush.com/2009/10/21/amazing-pictures-pollution-in-china/#

  • avatar
    carm

    dwford : It’s time we stopped worrying about how much consumers are PAYING for goods and time we started worrying about how much workers were EARNING from PRODUCING goods!

    We should also stop padding the pockets of investors that make companies squeeze every last penny of profit from a product produced just to raise the stock price.

  • avatar
    panzerfaust

    Well, what else is new? Our President is not only a marxist he’s an incompetent marxist.

  • avatar
    lewissalem

    Yep, the Smoot–Hawley Tariff Act did wonders for our economy in the 30′s. Let’s go in that direction.

  • avatar
    dougjp

    Probably the stupidest, most amateurish move Obama ever made. Ranks up there with the average Dubya decision, which typically involved diving into a pile of poo, then trying to figure out how to get out.

    Maybe the Chief Executive salary isn’t enough to attract people who can think on multiple levels? Scary.

  • avatar
    Juniper

    panzerfaust :
    Well, what else is new? Our President is not only a marxist he’s an incompetent marxist

    Suggest you take a high school history class before posting like this.

    I think the more face time China gets at the WTO the better. This is just a “best defense is a good offense” move.

  • avatar
    HEATHROI

    This is just a “best defense is a good offense” move.

    Well the Chinese certainly see it as offensive.

  • avatar
    HEATHROI

    Our President is not only a marxist he’s an incompetent marxist.

    our dear leader is not a Marxist at all just a tool of wall st and the defense industry amongst others.

  • avatar
    PeteMoran

    @ OldandSlow

    Perhaps our friend Robbie can explain the concept of externality for us.

    I guess the unemployed could have bought even cheaper tyres …… I suppose that would be worse.

  • avatar
    mikey

    I havn’t got a clue about international trade or
    or the WTO,or currency manipulation.

    I do now something about tires. Chinese tires are garbage. I don’t care if they were giving them away.

  • avatar
    OldandSlow

    @ PeteMoran – eventually the Chinese will choke on the all the effluence from becoming the world’s factory. Hopefully, they don’t decide that they need more lebensraum.

    The Kumho tires that are fitted to the bottom of the line Ford F150 are Chinese. You’ll need replacements by 25,000 miles – which is comparable to the bottom of the barrel OEM Firestones of the past.

    Hopefully, the major brands are rigorously testing random samples from each batch of their Chinese tires – I doubt that this is the case.

    Private label tires – http://www.delnat.com/ – rely on the assurances and inspections by the original manufacturer.

  • avatar
    William C Montgomery

    Amen to what lewissalem said about the Smoot-Hawley Tariff Act of 1930. The stock market crash in 1929 triggered a panic that would have been nothing more than an ugly pimple in US economic history like those before it. But the Act that was intended to protect American jobs thrust the country into a decade long depression.

    Unemployment rate when the act was passed: 7.8%
    Unemployment 1 year later: 16.3%
    Unemployment 3 years later: 25.1%
    Unemployment 10 years later: ~15%

    As it turned out, 1930 was the low watermark for unemployment of the 1930’s – by about half.

    So one must ask, is Obama ignorant of history? Or dangerously stupid?

  • avatar
    Wally5

    @oldandslow; kumho is korean not chinese. Whole world of difference in terms of quality. Something tells me this trade war wont end well

  • avatar
    fincar1

    One can look at all the decisions that President Obama has made with regard to the automotive industry and easily see that he is not only ignorant of history, but of economics. If he had more people around him who do have a good grounding in these fields, and fewer of his henchmen from Chicago, the country would be better off. It will take the United States quite a few years to recover after his administration is over.

  • avatar
    YZS

    I get all that. What I don’t quite get is how the peg is considered to be currency manipulation when pumping USD into the marketplace is considered not. When our Fed fixes interest rate at almost zero, requiring our treasury to issue bonds and purchasing them back… the result is massive pumping and devaluation of the currency. Yes, the USD is determined by supply and demand, but when we can create the supply and demand ourselves, how is that not manipulation?

  • avatar
    OldandSlow

    @ Wally 5 – I well aware that Kumho are Korean – but Kumho and Hankook are both producing some of their tires in the PRC now.

    The Kumhos on the new entry level Ford F150 are definitely from China, Korean name or not. The Koreans are dealing with a stronger Won versus the Dollar. Ford wanted Kumho to keep down the unit price and they did just that by off shoring to the PRC.

    Keep in mind that the entry level OEM tires for the Big 3 domestics have been near the bottom of barrel for decades.

  • avatar
    criminalenterprise

    Robbie :

    dwford, Stewart Dean, criminal enterprise: your comments defy all economic logic… (I teach Economics at a top 50 US university)

    You’ve responded to thoughtful comments with an appeal to (your own!) authority and summary dismissal of everyone else. Please, next time try to offer constructive rebuttal.

    Thanks anyway.

  • avatar

    dwford,carm:
    It’s time we stopped worrying about how much consumers are PAYING for goods and time we started worrying about how much workers were EARNING from PRODUCING goods!
    ….
    We should also stop padding the pockets of investors that make companies squeeze every last penny of profit from a product produced just to raise the stock price.

    Actually, investors that sit around fat, dumb and happy while management games the system by gutting the corporation to artificially show fantastic profits eventually get what they deserve: a bankrupt corporation and worthless stock, ex: GM. Of course, it’s pretty hard on what used to be called the rest of the stakeholders.
    These days management is into resource extraction: they mine corporations until the lode plays out. And even if the investors are aware, the game is rigged against their intervention.

    A reinvention of the capitalist model is needed.

  • avatar

    …and yes, even a liberal can see that the tire decision was a blatant bad payoff, just like occurs everywhere in politics on both sides of the aisle. If that’s the worse O does, I’ll be happy enough.
    It’s clear that what labor *should* be doing is trying to find some way that American labor can compete in jobs that the average Joe and Jill American can fill. There’s no way that either the left or the right can make water run uphill, though both sides persist in riding their pet hobby horses.


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