By on September 14, 2009

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.

Get the latest TTAC e-Newsletter!

Recommended

29 Comments on “Editorial: Trade War Watch 2: A Game of Chicken...”


  • avatar
    PeteMoran

    Really? Show China that there is trade “power” on the ownership side too. Why not encourage HP, Sony and Dell to shift from China/Taiwan to India, or even (heaven forbid) back to the USA? Nike could finish moving to Indonesia/South America. Etc etc…

    They’ve pretty well been gifted all the facilities to get started in China and the welcoming countries would do the same (ie Intel in Israel, HP in Spain – endless examples).

    Just saying…. Maybe the world needs a wake up from “China dependence”.

  • avatar
    abcb

    Shifting factory takes too long, and there is whole host of problem shifting production to countries that also has shaky IP laws such as India.

    If production come back to USA, there is no way the price can match the stuff made in China. No way i am willing to fork over 30-50% extra money just to buy made in USA

  • avatar
    shaker

    This disruption is poorly timed, and ill advised.

    I can’t believe that this couldn’t have been negotiated somehow. Unless the President knows something that we don’t (maybe he wants China to go before the WTO, where their protectionist practices could be called into question), it’s not a good idea to pressure a major debt holder when we’re running around with our pants down. I hope that the President is being smart here, rather than pandering to a narrow constituency for limited political gains.

  • avatar
    PeteMoran

    No way i am willing to fork over 30-50% extra money just to buy made in USA.

    That’s what we say here in Australia. No way are we paying 50% more for US made Caterpillar loaders when we can buy the “equivalent” from Wuhan Chancay Machinery.

    They only need to last half as long anyway, so anything else is a bonus and then they go into the scrap yard. Plus we save HUGE amounts of interest payments.

    Sustainable? My ar$e!

  • avatar
    RangerM

    Welcome to 1930.

  • avatar
    Ingvar

    Well, it seems to me as the actions of Obama is ill-advised, that the punitive tax on Chinese goods was done on the altar of domestic politics for short-term political gain, with long-term losses on the international economy. Making popular moves in the short-term may always by votes, however, making unpopular moves that have long-term gain is what differentiate a true leader of a country from a populist.

  • avatar
    abcb

    PeterMoran:

    Why buy loaders from Wuhan Chancay machinery? Buy from Shandong SEM Machinery Co., Ltd instead. They are 100% owned by Catepillar should have alot better quality control. So now only do you get the made in china discount, but you also get above average QC.

  • avatar
    KatiePuckrik

    I don’t know, but I’m sometimes willing to pay extra for (in my case) UK made goods. I sometimes go out of my way to buy UK made goods. I changed my shampoo and conditioner from L’Oreal to Original Source (made in the UK by a UK company). I buy my petrol from BP or Shell, I bank with a British Company, my next car will be made in the UK (Jaguar XF or Toyota Auris Hybrid), I switched my mobile phone provider from a Spanish company to a UK one, I always fly with British Airways and I examine all products I buy to see the “Made in the UK” moniker on it.

    Yes, it does make shopping with me a lot more tiring (shopping with a girl boring? Who’d have thought it?) but I like the idea of supporting fellow countrymen’s jobs. Yes, there may be less money to go around (RE: the broken window fable), but at least more people will stay employed.

    I’m not saying that EVERYONE can do this; some people have smaller budgets and that’s fair enough. I’m just saying I don’t mind paying a bit more and/or spending a bit more time to find products made in the UK.

    Now if the cost was excessively high, then, economic patriotism goes out of the window. Even I have my limits if someone is trying to stiff me. But on the whole, I find UK products comparable with foreign made goods.

    Anyway, back to this trade war. I think the United States may have stuck a thorn in its foot by igniting a trade war with China. If the United States was really (and I mean REALLY) concerned about US manufacturing, then it would offer more tax breaks to factories being set up in the United States.

    All this is, is Obama paying back the unions’ money which were graciously “donated” to his election war chest.

    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).

  • avatar

    Two additional comments on this:

    One: The on-going complaints against then “currency-manipulated” Yuan (and even the Japanese Yen) probably is the symptom of an endemic American disease: The inability to grasp currency swings. You rarely hear a European complain about currency fluctuations, they had to live with them for eons. As some enlightened soul on TTAC rightly commented, the Chinese Yuan is actually overvalued. How so? Until 2005, the Chinese Yuan was pegged against the US dollar. A dollar bought a little bit over 8 Yuan. Following July 2005, the Yuan was officially pegged against a “basket of currencies.” That basket was overweight in Euros. As the Dollar lost in value against the Euro, the value of the Yuan increased against the Dollar. In July 2008, the Dollar was at its lowest against the Euro, one Euro bought $1.60 . Likewise, the value of the Yuan was at its highest, a Dollar could be had for only 6.83 Yuan. Then the Dollar became stronger again, as strong as $1.25 against the Euro. Wonders of wonders, the Yuan did not budge. Unannounced and unofficially, but until this day, China had re-pegged the Yuan to the Dollar, at the worst rate possible. Why? Nobody knows. Hurts Chinese exports to the USA bigtime. Until the Dollar trades as low as $1.60 against the Euro, the Yuan is undervalued.

    Two: The Chinese consumer will bear the cost of the trade war. More than the American. The American consumer may pay more for tires. How often do you buy tires? The Chinese consumer will pay more for chicken, a near daily purchase. Chicken is the favorite meat in China, before pork and beef. The price of American poultry in China is approximately 50% of domestically produced. Another collateral damage: KFC. The American chain has more than 2600 KFC stores in China and plans to open a new one every day. With the price of broilers going up, that expansion may slow down quite a bit.

    Trade wars are worse than real wars: In trade wars, everybody gets hurt.

  • avatar

    KatiePuckrik :

    I always fly with British Airways …

    Now that’s what I call true patriotism, bordering on self-sacrifice!

    I admit, I’m a prostitute, I take anyone who flies me there the fastest and the cheapest way.

  • avatar
    NulloModo

    I am a bit confused about how it could cost more to raise chickens in China than in the US. Labor, land for factories, and raw resources are all cheaper in China, and their agricultural regulations aren’t as strict, so why can’t they do it a lot cheaper than we can?

  • avatar
    KatiePuckrik

    Herr Schmitt,

    British Airways is great! I love them!

    I flew Lufthansa once….never again! British Airways always for me.

  • avatar
    GS650G

    Obama is a genius. Who ever though he was smart enough to find a way to make the same mistakes the country made in the 1930’s

    The man is brilliant I tell you.

    The beauty of this is we get to have a trade war with a nation that builds most of what we buy. Dealing from a position of weakness indeed.

  • avatar
    PeteMoran

    Buy from Shandong SEM Machinery Co., Ltd instead. They are 100% owned by Catepillar should have alot better quality control.

    Because they’re only 49% cheaper rather than 50%!

  • avatar

    NulloModo:

    I am a bit confused about how it could cost more to raise chickens in China than in the US. Labor, land for factories, and raw resources are all cheaper in China, and their agricultural regulations aren’t as strict, so why can’t they do it a lot cheaper than we can?

    Much higher degree of automation in the US. Ever been in a US chicken farm? Don’t go if you don’t have to. That raw resources cost less in China is a myth, they cost the same, if not more if imported. Land must be rented from the government (at low rates if you are lucky.) In America, the land is free if you have inherited it from your forebears … Let’s not forget $25b in annual farm subsidies ….

  • avatar
    ClutchCarGo

    OK, so the tariff is likely to spark tit for tat trade barriers that will serve no one well. But assuming that the complaints about Chinese tires are not totally specious, what should the US do about it? Grin and bear it? Issue a strongly worded statement? The Chinese would surely take a weak response as general weakness, and move on subsidize the next industry to grab market share.

    I’m not being sarcastic. I really wonder what the better option is. While the tire jobs certainly aren’t coming back, how do we keep this from happening over and over again?

  • avatar
    Pch101

    A little calm is required here.

    For one, everybody plays the tariff/ import restriction game in some way, and China is no exception. The average tariff imposed by the Chinese is about 10%: http://www.interfax.cn/news/7471 Their maximum tariffs go much higher than that. As far as keeping open markets go, the US certainly does its share of importing, so it’s not as if we have something to prove when it comes to buying other peoples’ goods.

    The trade-Great Depression connection is also overblown. Not to say that the trade policies of that era were particularly helpful, but the US was a modest exporter prior to the Depression and had very little decline in GDP as a result of the trade restrictions. Capital was tight — it was a depression, after all — and consumer spending had fallen through the floor, so naturally there was less trade, given that there was less spending of all types. The primary problem for the US during this era vis-a-vis trade was indirect; other countries that were in debt to the US had difficulty repaying it, in part because of the decline of trade.

    The Great Depression was ultimately an equity bubble that would have probably turned into a recession had it not been for massive bank failures in both the US and abroad. The efforts that you see today to prop up the banks are being made precisely because those who have studied the Depression in depth understand this linkage between the implosion of the banking system and the long duration of that downturn.

    Sorry, but this is much ado about nothing. I would assume that the administration is using this as an opening volley to negotiate new terms with the Chinese and equalize the relationship. That may or may not work, but it’s a game of political chess, not a crusade against trade. It will make for fun headlines for a few days, and there will be plenty of tires for Americans to buy, regardless of where they’re made.

  • avatar
    John Horner

    Here is some recent data on trade between the US and China:

    Jan ‘09 through June ‘09 cumulative:

    US-to-China: $35,662.6 million
    China-to-US: $159,130.8 million
    Difference: $-123,468.2 million

    http://www.census.gov/foreign-trade/balance/c5700.html#2009

    Tell me again which country has more to loose in a trade war?

  • avatar

    PC101: I am afraid this is one of the rare times you are wrong. The winds of trade wars have been blowing all around the globe for a while, and they will turn into a storm. Protectionism comes with recession like fever comes with flu.

    The Chinese are mad as hell. China’s Minister of Commerce Chen Deming just said that Obama made a commitment for free trade at the G-20 financial summit, and he lied.

  • avatar
    Pch101

    The winds of trade wars have been blowing all around the globe for a while, and they will turn into a storm.

    Sorry, but I’m not buying it. The tire thing is a tiny drop in a very large bucket.

    China needs markets, and the US wants cheap imports in order to prevent inflation and maintain (the appearance of) prosperity. In that sense, the relationship is symbiotic and mutually beneficial. Nobody is going to pull the rug out from under that.

    Chinese officials can spew all of the rhetoric that they want. At the end of the day, we’ll cut a deal. The issue for the US will be to negotiate in such a way that the Chinese can save face, and that shouldn’t be too difficult.

  • avatar
    shaker

    We’ll find out at the G-20 (A true blessing to our fair city of Pittsburgh, PA), where “the rubber meets the road”, so to speak, to find out who is full of hot air and whether all of the pressure will reap a benefit.

    I know that not buying Chinese Chicken is unfair to them, but with their QC + avian flu; who would chance it?

  • avatar
    Jeff Puthuff

    “America doesn’t allow any importation of chicken from China. It is quite unreasonable,” said Ma Chuang.

    In fact, Ma, it is very reasonable. According to the UN, “In China, since 2004, over 100 H5N1 HPAI outbreaks have been reported in poultry and wild birds in 23 provinces, and a total of over 35 million poultry have been culled to control the spread of the disease. [Source]

    We’re (literally) sick of the Chinese Poison Train.

  • avatar
    davey49

    “No way i am willing to fork over 30-50% extra money just to buy made in USA”

    I am, and often do. I buy American whenever possible. Too bad some stuff is only made in China.

  • avatar
    Dynamic88

    The Chinese are mad as hell.

    Big deal.

    The Chinese need a place to sell their cheap crappy Sh*t. They need us a lot more than we need them. We can always get cheap crappy sh*t from India or Malaysia, ….. It may not be quite as cheap, or quite as crappy, but it will still be cheap crappy shit, so there is nothing for American consumers to worry about.

  • avatar
    dilbert

    When I was in Heathrow, at least 85% of the delays and cancellations I saw and heard were BA flights. It was actually quite comical for me, because every 5 minutes they would announce another delay on flight BAXXX and after a while, I got quite sick of the announcements, it was getting to the point of being disruptive. But I look around and (I presume), the mostly British travelers, act like it’s just another day in paradise.

    That’s highly antidotal at best, but that was my first hand experience with BA, thank god I wasn’t actually on a BA flight.

  • avatar
    wsn

    shaker :
    September 14th, 2009 at 12:08 pm

    I know that not buying Chinese Chicken is unfair to them, but with their QC + avian flu; who would chance it?

    ——————————————-
    So, does China have a legitimate reason to ban American beef? (You know, the BSE, it never quite went away.)

  • avatar
    wsn

    Dynamic88 :
    September 14th, 2009 at 7:21 pm

    The Chinese need a place to sell their cheap crappy Sh*t. They need us a lot more than we need them. We can always get cheap crappy sh*t from India or Malaysia, ….. It may not be quite as cheap, or quite as crappy, but it will still be cheap crappy shit, so there is nothing for American consumers to worry about.
    ——————————————–

    I thought this whole big deal was about keeping American jobs. If the cheap stuff had to be produced somewhere else, what makes you feel that buying Indian crap is any better than buying Chinese crap?

  • avatar
    cleek

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

  • avatar
    Mark MacInnis

    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.

Read all comments

Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

  • el scotto: @Dartdude Our Federal Government, thankfully, is not like Apple computer corporation. I have an iPhone 3...
  • el scotto: @SCE to Aux; I can think of three stand-alone Cadillac dealers. Lockhart Cadillac in Greenwood and Fishers...
  • Ol Shel: You should choose a car from a company that’s never had a recall, like: Nash, Duesenberg, Datsun,...
  • RHD: That’s a lot of money to put on the line for such a silly bet. Truth be told, ICE vehicles will be slowly...
  • DenverMike: The old fogeys say that. It assumes the grade coming up the mountain is the same one going down. Or...

New Car Research

Get a Free Dealer Quote

Who We Are

  • Matthew Guy
  • Timothy Cain
  • Adam Tonge
  • Bozi Tatarevic
  • Chris Tonn
  • Corey Lewis
  • Mark Baruth
  • Ronnie Schreiber