By on January 20, 2010

And it burns, burns, burns. Picture courtesy altimeco.com

In September 2009, incoming President Barak Obama slapped a 35 percent punitive tariff on Chinese car and light truck tires exported to the USA. That, in addition to an existing 4 percent duty. No American tire manufacturer had requested the boneheaded move. It was a thank-you to the steelworkers union. Cooper tires openly opposed the action. Ironically, US tire companies were hardest hit by the measure, because they had moved most if not all of their budget segment tire production to low labor cost overseas sites. No job was created in the US. Many were lost. Low cost tire manufacturing simply moved to other overseas countries, which were the only beneficiaries of the useless war.

TTAC warned of a trade war, predicted that China will drag the USA in front of the WTO, and that China would take tit-for-tat measures. All of it became true.

In the trade war dept., China slapped import tariffs or restrictions on imports of U.S. nylon, industrial acid, chicken and other products. It also has initiated an investigation into whether U.S. automakers are selling below cost, or “dumping”, cars in China. The U.S.  retaliated, looking into allegations of dumping in other products, amongst those arcane items such as carbon magnesia brick. Last month, the U.S. slapped punitive tariffs on imports of Chinese steel pipes, a $2.8-billion market. Google is making on-again, off-again threats of leaving China. The trade war is escalating.

As predicted, China dragged the USA in front of the WTO. As reported by Reuters, the WTO accepted China’s complaint and agreed to convene a panel. WTO will formalize the panel at a meeting on Jan. 19. The three-judge body will look into whether the U.S. violated WTO rules. According to the Wall Street Journal, “the panel will publish a decision after nine months of investigation. If it finds that the U.S. unfairly imposed the tariffs, it could authorize China to put tariffs on key U.S. imports, up to the amount lost by Chinese exporters because of the duties. The U.S. can appeal, meaning the case could last several years.”

Says Reuters: “The time it will take to fight the case, and then revoke the tariff if Washington loses, means the tire tariffs will have been in place for most of their original three-year duration.”

The WTO complaint is widely seen as a blocking action by the Chinese to discourage the U.S. from further invoking the special safeguard clause that was rammed down the Chinese’s throats when they joined the WTO in 2001. Other safeguard complaints are piling up, and the Obama administration appears trigger-happy. A moronic trade war with Japan over nearly non-existent U.S. car exports to Japan was avoided by Japan giving in to nonsensical demands of Detroit’s automakers, which hat already mobilized Hillary Clinton and Betty Sutton.

The discriminatory safeguard clause against Chinese imports will expire in 2013, probably before the current tire complaint will have run its course. A lot of damage can be done in these three years. Trade wars exert a big price, paid by the consumer at the check-out counter. Prices of tires are already going up, and higher rubber prices will exacerbate the matter.

Students of history may note that trade wars during recession times can lead to full blown depression.

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22 Comments on “Trade War Watch 10: WTO Accepts Chinese Tire Complaint, Trade War Escalates...”


  • avatar
    tom

    So stupid…it was funny to read about the Japanese C4C program on Autoblog though. It was the old “these unfair Nips” record all over again without looking into the matter or having the slightest clue.

  • avatar
    criminalenterprise

    China’s currency peg will continue to put downward pressure on a U.S. recovery.  The tariff tit-for-tats are simple gamesmanship in a much more meaningful set of disagreements.

  • avatar
    Steven Lang

    Where did that picture come from?

    I can imagine baby seals fainting at the mere sight of it…

  • avatar

    China’s currency peg will continue to put downward pressure on a U.S. recovery.
    Another often heard, and ill-advised statement.  China re-pegged the RMB against the $ last summer when the $ was at its low point of $1.60 against the Euro.  Ever since, the exchange rate has been 6.83 against the $.  The $ went to 1.25 against the EUR, a free floating RMB would have gotten cheaper in concert.  It did not. Today, the $ is 1.41 against the EUR, the RMB is still 6,83 against the $.  Until the $ hits $1.60 against the EUR (and it doesn’t look like it will anytime soon,)  China is doing the USA a big favor with the peg. The RMB is overvalued against the USD. Against the EUR, it trades in tandem with the $.

  • avatar
    tced2

    I’ve been shopping for tires for the past several months.  Prices of  many tires have gone up 7%.  The tires are already very expensive (over $800 for exact replacements for an Acura TSX).  This is a pretty standard car – not particularly heavy – not lots of power – what’s up with the expensive tires?  Part of the answer may lie in this “trade war”.

  • avatar

    tced2: Actually, prices have gone up further, but manufacturers and dealers are eating some of the loss. Dealers and distributors are hurting especially. It takes a while for price rises to work themselves through the system. The big rise is yet to come.

    • 0 avatar
      tced2

      I guess a 7% rise in prices over 3 months could turn into something like 25% annual rise – quite a lot.

    • 0 avatar
      Disaster

      I’ve seen this already.  The tires I bought last year, from TireRack, for something like $70 a piece are up around $100.  The trick is to be flexible and not fixated on one particular tire.  There are many equivalents that cost less.

  • avatar
    superbadd75

    Ultimately this is one man’s attempt to pay back his union buddies that put him in office. The saddest part is that it won’t create any jobs in this country, and might even cost a few.

  • avatar
    Telegraph Road

    Economist Paul Krugman argues that China’s weak currency policy amount to mercantilism.
    http://krugman.blogs.nytimes.com/2009/12/31/macroeconomic-effects-of-chinese-mercantilism/

  • avatar

    I recommend reading more currency charts than economist’s blogs.

    • 0 avatar
      clearance42

      Er, reading currency charts sounds to me like a much more limited research method than checking out Krugman’s blog, especially if you are going to look at the USD/CNY issue in light purely of the USD’s value relative to the EUR.  For example, saying the CNY would have moved cheaper because the USD/EUR spot rate moved to 1.25 is is not a useful data point.  Looking at the forward rates at any point in time is much more useful (ie – since then we can see the USD/EUR rate has inflated and then retracted to now 1.41, but still significantly up vs. 1.25, and if you look at the carry trade now it is expected EUR will continue to get more expensive).  So perhaps I should re-state my original sentence – looking only at single currency-pair spot rate charts strikes me as a limited way to present evidence.

    • 0 avatar
      criminalenterprise

      I was just listening to Charles Dumas.  I know of few economists who conclude that China’s currency peg is good for the world economy.  China continues its policy of beggar thy neighbor.  This is not to say the other nations of the world are without sin, but China’s government is particularly careless.

  • avatar
    Dynamic88

    How many jobs have been lost?   Is there any hard data on that?

  • avatar
    Ernie

    So, Bush’s soft hand with currency fixing = bad (okay)
    Obama’s hard hand with China’s everything else fixing = bad (um, okay)
    China taking over the world via car market = bad (“puts on his tinfoil hat” — oh, okay)
    Mesure-for-measure trade retaliation = bad (*SIGH* OKAY)
     
    So, the moderately summarized  sentiment appears that everyone needs to STFU, grow up and  operate honestly so the world can recover . . . but everyone is turning this into a chance to roast the other side . . . and taking action of any kind (even political or economic self-defense) is just adding kindling and gasoline . . .
     
    *sigh* so we’re going to have 4-8 years of attempted action, then another 4-8 years of reactionary NOTHING, then ??? can we get back to business as usual?
     
    BTW, the google thing isn’t political. The simple act of outing the source was risky enough to demonstrate that the first shot(s) were NOT fired by google.  It was serious enough to risk undermining investor confidence as well as potential revenue sources.  NO ONE wants or deserves their technology to be deliberately undermined.
     

  • avatar
    Disaster

    Trade wars always turn out badly for both sides.  During a recession/depression they make things even worse. Those that don’t study history are doomed to repeat it.

    http://en.wikipedia.org/wiki/Smoot%E2%80%93Hawley_Tariff_Act

    • 0 avatar
      Ernie

      “In May 1930, the greatest trading partner Canada preemptively imposed new tariffs . . .”
       
      I see what you’re sayin here . . . it’s all CANADA’S fault!
       
      I’m on board with that. :D

  • avatar
    YZS

    The two wars we have are too boring and didn’t involve 95% of Americans.  Let’s have a trade war with our biggest lender to add some excitement and make 100% of Americans suffer.

  • avatar
    taxman100

    What U.S tiremakers?  There are only two U.S. tire companies left of any size – Goodyear and Cooper. 

    I don’t have the data in front of me, but I believe there has been 5 U.S. owned tire manufacturing plants that have closed in the U.S. over the last 2-3 years.  

    Whether you think the tariff is good or bad, what is bad is our elected officials have given up our sovereignty over our trade policy to an unelected world governing body – the WTO.   Washington is destroying this country.

  • avatar
    texlovera

    One minor quibble:

    I would not characterize President Obama as an “incoming” President as of September, 2009.  He’d been in office 8 months or so…

  • avatar
    golden2husky

    Tariffs on imports like this generally are a bad idea, but lets be real: China taking the US to the WTO? Saying the US is dumping? Please. For every item the US may “dump” there are no doubt hundreds of items that the Chinese dump every day.


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