When we last checked in on the low-level trade war between China and the US, which was sparked by President Obama’s 35% tariff on Chinese tires, the Chinese government had ruled that American large cars and SUVs were being “dumped” on the Chinese market, but wasn’t doing anything about it. Now, Reuters reports that China is doing something about it, namely saying that it plans to impose tariffs of up to 22% on imports of American-built large cars and SUVs. And the “up to” is key: GM and Chrysler are being hit hardest (unsurprisingly), while American-made BMW, Mercedes and Acuras are receiving considerably lower tariffs.

Still, China only imports $1.1b worth of vehicles in this category, whereas the US imported some $1.8b worth of Chinese tires prior to the Obama tariffs.  Like most of the news around Chinese-American relations, this is more saber-rattling than substance. But with economic conditions still shaky in the US, and a Presidential election getting into full swing, small spats can escalate into larger confrontations. And with China surpassing the US as the largest market for cars in the world, it’s probably no coincidence that this simmering conflict largely involves cars and car-related products.

The trade war that erupted between the US and China late last summer may have cooled to an angry simmer, but its effects are once again being noticed in the automotive industry. After President Obama slapped a 35% tariff on imports of Chinese-produced tires, the Chinese government started casting around for potential objects of retaliation, and, as Bertel reported, US auto exports to China made “a good tit-for-tat.” The US imported $1.8b worth of Chinese tires in 2009, while China imported $1.1b worth of US-built cars (including transplant brands) in 2008. You shoot our dog, we’ll kill your cat.”

Now, the Chinese Ministry of Commerce has concluded its “investigation” into US auto dumping and illegal subsidies  in the Chinese market, and it just so happens to single out the two automakers who are partially owned by the US. Coincidence? Not so much. [Hat Tip: Michael Banovsky]

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In its fight against American CAFE rules, Porsche is ratcheting up the decibels. For background on Porsche’s beef, see here, and here. For a possible way out, see here.

Unconvinced by electrification plans, Porsche’s new boss Michael Macht publicly joined the fray. He doesn’t mince words. “What’s happening here borders on a trade war,” said Macht yesterday evening, while Das Autohaus took notes. “We’ll keep at it. The German auto industry will not give up territory over there unnecessarily.”  Financial Times cited Macht as saying that “the Americans are spoiling for a fight.” (Read More…)

As U.S. President Barack Obama landed in Shanghai for a weeklong visit to his largest creditor, China, the news awaited him that China’s Ministry of Commerce will investigate the U.S. government’s financing and rescue plans for the American auto industry, Shanghai Daily reports.

The move is part of China’s probe into possible dumping and subsidies on U.S.-made vehicles imported to China, the ministry said. Trade officials will be looking for dumping practices and for unfair government subsidies.
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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.
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Ever since bailout measures for the auto industry were first mooted, free market detractors whispered “WTO.” Nobody took it seriously. True, according to the World Trade Organization’s rules, direct subsidies are not allowed. But it’s equally important to note that the 153-member quango has never put a single issue to a vote since its birth in 1995. Consensus governance means that as long as nobody complains, and especially, as long as everybody plays the same game, the WTO hangs fire on principle. Auto industry loans? They’re all doing it. Still, there is a line a WTO member mustn’t cross. And America almost crossed it.

Recent amendments to Uncle Sugar’s near-as-dammit trillion dollar economic stimulus package would require US firms to use local steel and other components in state-funded projects. The provision kicked sand in the face of the WTO’s raison d’être: the most favored nation (MFN) rule.

Under the terms of the MFN rule, a WTO member must apply the same conditions on all trade with other WTO members. The provision also applies to trade within and without a given nation. “Imported and locally-produced goods should be treated equally (at least after the foreign goods have entered the market).” To do otherwise constitutes blatant protectionism.

Similar buy local protectionist measures have been adopted or considered in Argentina, China, Indonesia, Ecuador, India, Russia (re: imported used cars) and Vietnam. All seven WTO member nations have landed on a WTO ­surveillance list.

The Guardian writes that the European Union (EU) is pissed with the “buy American” bailout provision. They’ve threatened legal action and retaliatory measures against the US if the Obama administration enshrines this clause in its multibillion-dollar economic stimulus package. Brussels said it could take the US to the World Trade Organization for breaching treaty rules.

The warning came just a day after Joaquín Almunia, EU economic and monetary affairs commissioner, pointed to “clearly protectionist measures” emanating from Washington. The EU ambassador to Washington has expressed similar concerns. A spokesman for Lady Ashton, EU trade commissioner, said: “If the provisions that are finally passed by the US Senate and approved by President Obama infringe the provisions of the GPA [general procurement agreement], to which the US is a signatory, then this is something we will have to consider taking them to the WTO over.”

Compared to previous hints and “concerns,” this amounts to a barrage of warning shots. Amid fears that the US and other countries could trigger a disastrous 1930s-style “Great Depression” trade war through protectionist blocks on trade, the European commission highlighted similar moves in Europe.

A French €10b aid program requires firms to source components solely from France, keep only the French plants open and scrap plans to “de-localize” jobs to elsewhere in the EU. Neelie Kroes, EU competition commissioner, will warn French ministers in talks in Brussels that state aid must not only comply with competition rules but also with EU laws on freedom of movement and capital. “They have to realize that once they start down that protectionist path it’s a descent into chaos,” her aides said.

On Tuesday, U.S. President Barack Obama signaled fear that Buy American provisions—supported by Democrats in steel-producing and economically distressed states—would trigger a trade war at a time when the global economy is in dire straits.

On Wednesday, lawmakers voted to soften the controversial “Buy American” provisions in the proposed U.S. economic stimulus package. The amendment, approved by the Senate, requires the Buy American provisions be “applied in a manner consistent with U.S. obligations under international agreements.” Which is like saying you can burgle a house as long as you don’t break the law.

The bottom line for carmakers: even if America’s avoided a trade war (for now), they can’t win.

If the feds restrict the bailout buffet to The Big 2.8 and domestic production, they run the risk of retaliatory measures from neighbors—and markets—around the globe.

And don’t forget it’s a small world after all. In the run-up to the meltdown, Motown’s automaker practically demanded that its suppliers outsource abroad. By now, keeping the suppliers’ share of the domestics’ business within U.S. borders will be more about spin than compliance. Especially if those suppliers receive their requested $20.5b bailout.

On the other hand, if the feds don’t limit their largess to domestic producers, they run the very real risk of alienating whatever voter and/or union support exists for the pork barrel parade. A billion dollars of TARP money for Brazil? Esqueça-se.

On a practical basis, a truly “fair” bailout would put the domestics at a disadvantage.

Think of it this way: the existing Chrysler loans are equivalent to a current subsidy of $10k per vehicle sold. If, instead, you offered American car buyers $10k off a car, they wouldn’t buy a Chrysler. Clearly, you couldn’t offer the discount certificate just to Chrysler buyers. What kind of country would that be? Welcome to Bailout Nation.