President Barack Obama will carry a familiar gift to election rallies in Ohio today.
“The Obama administration will announce a trade complaint against China today as President Barack Obama campaigns in Ohio, alleging impermissible subsidies of auto- and auto-parts exports that encourage outsourcing to China from the U.S.” an administration official told Bloomberg.
According to the report, the U.S. will accuse China of $1 billion in illegal subsidies between 2009-11.
This wag the dog trade war has a rich tradition. In July, the United States reported China to the WTO over extra duties on more than $3 billion worth of cars imported from the U.S. This also coincided with Obama campaigning in Ohio.
While UAW members will love to hear the new salvos in a trade war with China, car-makers will flinch. Their profitability, and large parts of the viability of U.S. production, hinge on the importation of cheap Chinese parts. It was Detroit that spearheaded outsourcing to China, often to factories owned by Detroit car companies. Especially the viability of GM depends on good relations with its largest market China .
The industry believes and hopes that this is mostly pre-election theater. Would the Obama administration be serious, it could easily slap a punitive tariff on Chinese parts instead of going the long and winded WTO route.
According to Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group and former World Bank employee, the “rhetoric will likely be toned down following the polls, as the competitiveness of the U.S. auto industry will suffer should they impose sanctions on imports of relatively cheap Chinese parts.” Also, the Chinese will point out that the bailout of GM alone was more than 50 times bigger than their alleged illegal subsidies.
What is discouraging is how readily this nonsense is consumed. Raising tariffs would raise the price of U.S. made cars, hitting consumers in the wallet. To compete, cars would have to be made in Canada and Mexico, which don’t have these tariffs. More jobs would get lost. Eventually, production of Asian car parts would migrate to other low cost countries.
Today, China files a counter complaint abolut close to 30 products that have previously been targeted by U.S. duties. According to the WTO, the products include steel, tires, magnets, chemicals, kitchen appliances, wood flooring and wind towers.