Editorial: Trade War Watch 2: A Game of Chicken

Bertel Schmitt
by Bertel Schmitt

Here we go. Just two days after Obama signed the edict to slap a 35 percent punitive tariff on Chinese car and light truck tires exported to the USA, the Chinese government “has reacted by launching an anti-dumping and anti-subsidies investigation” into American goods exported to China, writes China Daily. In China’s cross-hairs: American cars exported to China. Next in line (who would have thunk it): American chickens exported to China.

Welcome to Trade War Watch. We fear, a regular feature of Thetruthaboutcars.com.

The value of American cars exported to China approximately matches the value of Chinese tires exported to the USA. Around $2 billion, each way. Poof.

Chickens are a totally different matter. According to figures from the United States Department of Agriculture, the US exported 330,000 tons of chicken to China in 2008. Chinese chicken exports to the USA? Zero. “America doesn’t allow any importation of chicken from China. It is quite unreasonable,” said Ma Chuang, deputy secretary-general of China Animal Agriculture Association, to China’s Global Times.

China’s chicken hatchers had contemplated an anti-dumping probe into America for a while. Now, Beijing sends the feathers flying.

Chicks are big business. “The total export value of U.S. poultry meat, table eggs and processed egg products set an all-time record last year, reaching $4.7 billion, 25 percent above 2007,” reports the chicken-chronicle Watt Poultry USA. The biggest markets for American broilers are Russia, China, and Mexico. 81 percent of America’s chicken claw exports go to China, 15 percent go to Hong Kong—we don’t want to know who consumes the remaining 4 percent.

With a face as straight as possible, China’s Ministry of Commerce says that the probes into cars and chicks are “not a retaliation” against the tire dispute, but simply “a response to domestic concerns.”

Also as predicted by TTAC, China wants to drag America in front of the WTO. Trade ministry spokesman Yao Jian said China “reserves all legitimate rights, including referring the case to the WTO”. If the case goes to the WTO, subsidy and anti-subsidy agreements under the WTO framework will come on the table. If anything is subsidized to the hilt, then it is cars made by the two zombie automakers. If we assume $100 billion dumped into them so far, every car made by Chrysler and GM carries a $20,000 subsidy.

This all may sound funny or righteous, but it is highly dangerous. Lessons not learned from the Great Depression: As every historian knows, protectionism was one of the reasons why America, after a recovery from Black Friday, plunged itself and the world deep into a prolonged depression that ultimately led to World War II.

As far as jobs go, Obama’s signature under the tire petition is a disaster. It will not bring a single job back to the American tire industry. As written on Saturday, tire makers will simply shift production to other low wage countries not affected by the China-only ban.

Supposedly, the outsourcing of tire production to low cost countries did cost 5000 US jobs. Now, witness the effect of Obama’s signature: In China, the measure will leave Chinese workers, whose welfare is ever so close to our hearts, jobless and hungry. Fan Rende, chairman of China Rubber Industry Association, said that “Obama’s decision may affect the employment of 100,000 tire workers in China.” China Daily even predicts (without naming sources) that “some 100,000 tire-related jobs in the United States could be affected, including such sectors as imports, distribution and retail.”

The definitely not left leaning Foreign Affairs journal writes:

Americans are increasingly disturbed by the growing economic clout of China. With Chinese growth rates consistently above nine percent, they accuse it of stealing U.S. jobs, of keeping the Yuan undervalued by pegging it to the dollar, of exporting deflation by selling its products abroad at unfair prices, of violating the rights of its workers to keep labor costs low, and of failing to meet its commitments to the World Trade Organization (WTO). Most of these charges have little merit. But the misunderstandings behind them have opened the way to a trade war between the United States and China — one that, if it escalates, could do considerable damage to both sides.

China is not stealing U.S. jobs or engaging in unfair trade practices to undercut U.S. economic might and exports its way to global power. In fact, almost 60 percent of Chinese exports to the United States are produced by firms owned by foreign companies, many of them American. These firms have moved operations overseas in response to competitive pressures to lower production costs and thereby offer better prices to consumers and higher returns to shareholders.

Wal-Mart alone purchased $18 billion worth of Chinese goods in 2004, more than Australia, Canada, or Russia imported from China. A global trade war is being started with America shooting at its own ghosts. China is prepping for counter-battery fire. Hold on to your wallets.

Ironically, the “fear that a trade war will erupt between China and the U.S.” lifted the value of the dollar this morning, says the Wall Street Journal. Which makes imports even cheaper. Stocks go the other way. Dow Jones reports that “European stock markets traded lower Monday, weighed down by fears of protectionism and a possible U.S./China trade war.” We’ll soon find out how our already battered 401Ks like the game of chicken.

Bertel Schmitt
Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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  • Cleek Cleek on Sep 15, 2009

    Oh boy. A huge domestic surplus of chicken feet thanks to the free trade concerns of the steel workers.

  • Mark MacInnis Mark MacInnis on Sep 15, 2009

    Katie P: "I’m hoping China go mental, if just for the fun of seeing the United States and China having a war, except this war won’t result in the physical destruction of the planet (re: the cold war)." Don't be so certain about that, Ms. P.: Historically, a larger number of the "shooting wars" on this planet have started out as trade wars (more so than so-called "religious wars".) But I am with you. I am tired of seeing (figuratively) boats loaded with US dollars going back across the pacific....all in the name of lazy, bored Americans having the latest video game, gizmo, or fad. Walk into a big-box home store and try to find an American-manufactured anything. Takes some doing. Why it matters? Tangible manufactured goods mean jobs that have a tangible, measurable value...and purchases of those can be objectively measured a lot more easily than make-work "service jobs"...and they tend to pay better, too. The reason the American recovery is going to be a JOBLESS recovery is because the jobs that are created during a recovery are jobs where the end result is a tangible, manufactured good. Service jobs come back a lot slower, and only when the manufactured jobs' income has "primed the pump" for the rest of the economy. Since, for all intents and purposes, there ain't no manufacturing left in the US, there ain't gonna be no job recovery in the US....for a long, LOOOOOONGGGG time. Bernanke and his ilk can spout all the propoganda they want to about the "recession being over."....I ain't drinkin' the kool-aid. Mark my words, we are going to be worse off in a year than we are now, as the backside of the economic hurricane hits (we are in the eye now, so to speak.) That is why Obama's action(s) is (are....include an ill-conceived, ill-timed and unfunded healthcare plan) so short-sighted....we are going to continue to need China to continue to be our "friend" and buy our bonds....or we are going to be printing fiat money by the wheel-barrel-full pretty darned soon..... These liberals just keep pissin' in the wind, and all of America is getting splattered.

  • Dartdude Having the queen of nothing as the head of Dodge is a recipe for disaster. She hasn't done anything with Chrysler for 4 years, May as well fold up Chrysler and Dodge.
  • Pau65792686 I think there is a need for more sedans. Some people would rather drive a car over SUV’s or CUV’s. If Honda and Toyota can do it why not American brands. We need more affordable sedans.
  • Tassos Obsolete relic is NOT a used car.It might have attracted some buyers in ITS DAY, 1985, 40 years ago, but NOT today, unless you are a damned fool.
  • Stan Reither Jr. Part throttle efficiency was mentioned earlier in a postThis type of reciprocating engine opens the door to achieve(slightly) variable stroke which would provide variable mechanical compression ratio adjustments for high vacuum (light load) or boost(power) conditions IMO
  • Joe65688619 Keep in mind some of these suppliers are not just supplying parts, but assembled components (easy example is transmissions). But there are far more, and the more they are electronically connected and integrated with rest of the platform the more complex to design, engineer, and manufacture. Most contract manufacturers don't make a lot of money in the design and engineering space because their customers to that. Commodity components can be sourced anywhere, but there are only a handful of contract manufacturers (usually diversified companies that build all kinds of stuff for other brands) can engineer and build the more complex components, especially with electronics. Every single new car I've purchased in the last few years has had some sort of electronic component issue: Infinti (battery drain caused by software bug and poorly grounded wires), Acura (radio hiss, pops, burps, dash and infotainment screens occasionally throw errors and the ignition must be killed to reboot them, voice nav, whether using the car's system or CarPlay can't seem to make up its mind as to which speakers to use and how loud, even using the same app on the same trip - I almost jumped in my seat once), GMC drivetrain EMF causing a whine in the speakers that even when "off" that phased with engine RPM), Nissan (didn't have issues until 120K miles, but occassionally blew fuses for interior components - likely not a manufacturing defect other than a short developed somewhere, but on a high-mileage car that was mechanically sound was too expensive to fix (a lot of trial and error and tracing connections = labor costs). What I suspect will happen is that only the largest commodity suppliers that can really leverage their supply chain will remain, and for the more complex components (think bumper assemblies or the electronics for them supporting all kinds of sensors) will likley consolidate to a handful of manufacturers who may eventually specialize in what they produce. This is part of the reason why seemingly minor crashes cost so much - an auto brand does nst have the parts on hand to replace an integrated sensor , nor the expertice as they never built them, but bought them). And their suppliers, in attempt to cut costs, build them in way that is cheap to manufacture (not necessarily poorly bulit) but difficult to replace without swapping entire assemblies or units).I've love to see an article on repair costs and how those are impacting insurance rates. You almost need gap insurance now because of how quickly cars depreciate yet remain expensive to fix (orders more to originally build, in some cases). No way I would buy a CyberTruck - don't want one, but if I did, this would stop me. And it's not just EVs.