Trade War Watch 14: Hot Wheels

Now that the Conservatives (with the help of the Liberal Democrats) have come to power in the UK, the Conservatives are going to push forward their plans for a reduction in the UK deficit (i.e savage cuts). Now, while I agree in the long term, this will be good for the UK, in the short term, it will cause higher unemployment and severe “belt tightening”. The UK isn’t the only country with this frame of thinking. Only today, the Spanish government has announced deep budget cuts in order to reduce their deficit and to prevent markets from thinking of them as the next “Greece”. So, with the UK and Spain making these budget cuts, the Euro looking unsteady and Greece still not convincing markets, what else could make Europe stare at another recession? That’s right, a possible trade war.

Reuters reports that The European Union (EU) has imposed provisional anti dumping duties of of up to 20.6 percent on aluminum wheels from China. The EU did this after complaints from domestic competition arose.

Who will be hurt first? European companies like Renault and BMW. The use these Chinese wheels on their cars. Lots of other EU car manufacturers source their alloy rims in China. It needs a strong technological regimen to make them pass stringent ECE rules.

Naturally, the Chinese Ministry of Commerce denies any dumping charges and said that the investigation was not in line with World Trade Organization rules. In other words, “Stop picking on us”. The Chinese officials then tried to appeal to the good nature of the EU by saying that these duties could raise the cost of repairs for customers (concern for the European customer? How sweet!), slow the recovery of the European auto sector (Actually, Opel is probably doing more for that cause than some aluminum wheels) and hurt the interests of both China & Europe (Ah! That’s more like it!).

I don’t speak fluent “bureaucrat”, but after watching many episodes of “Yes, Minister” and “Yes, Prime Minister”, I’m pretty sure that “hurt the interests of” usually means “trade war” or such like. Mind you, to play Lucifer’s Advocate for a second, China aren’t exactly clean in this exchange of barbs. In December, they imposed a 24.6 percent anti dumping duty on steel fasteners from Europe and last month, launched an investigation into a type of optical fibre imported from the United States and Europe.

With trade between the EU and China (as of 2008) worth €326 billion, this is an area which both countries will need to tread carefully. The EU is the largest trading partner with China and if the EU annoys China, maybe some of that trade will go to China’s other large trading partner, the United States. Or on second thoughts, maybe not…..?