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Could the wheels fall off fair China-US trade?
By John Gong |
September 17, 2009, Thursday
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HOURS before Herbert Hoover signed the infamous Smoot-Hawley act into law in 1930 - raising import tariffs across the board to an average of 60 percent, subsequently sending the US and the world economy into the greatest depression in history - he had described it to his friends as "vicious, extortionate and obnoxious."
History tends to repeat itself - with the exception that the current US president waits a bit longer.
At the London G20 summit on April 2 this year, US President Barack Obama was still trumpeting together with world leaders a "joint call to fight protectionism," and agreed to extend for 12 months a pledge not to raise new trade barriers.
Four months later at a NAFTA (North American Free Trade Agreement) in Guadalajara, Mexico, he reaffirmed to Canadian and Mexican leaders "the need to reject protectionism."
Yet, last Friday evening, a "vicious, extortionate and obnoxious" decision came out of the White House, slapping a prohibitively high tariff schedule, starting from 35 percent in the first year, on replacement tires from China, albeit a watered-down version of the original ITC recommendations.
At this rate, the tire trade is guaranteed to head to the bottom of the Pacific Ocean, badly hurting American tire manufacturers and American tire consumers first and foremost. The Findlay, Ohio-based Cooper Tire immediately issued a press release denouncing the President's decision.
The Obama team makes it a practice of releasing unpalatable announcements on weekends, when they get buried under sports news and the punditry circle is out of town.
Regardless, the beggar-thy-neighbor protectionist measure hardly raised a ripple of concern among the otherwise domestically focused American public, which is now overwhelmed by the debate over healthcare reform.
Yet, the landmark tire decision sends shivers through the international business community, raising the prospect of ushering in a disastrous Smoot-Hawley era between the two most important trading partners in the world, at a time when the last thing the global economic recovery needs is trade protectionism.
The Ministry of Commerce in Beijing immediately announced a tit-for tat, or more appropriately, a chicken-for-tire, response, saying it would investigate imported chicken meat products from the US to determine if they were being subsidized or "dumped" below cost on the Chinese market.
Of course chicken meat production is subsidized by the US government, as anyone who has filed taxes using Form 1040 Schedule F knows what Box 7 on the 1099-G Form titled "Agricultural Payments" means. I quote from its instructions, "the amount of Department of Agriculture payments that are taxable to you."
The investigation also covers automotive products as well, potentially depriving Detroit of a much-needed source of revenue from the world's fastest-growing automobile market.
High-end American SUVs are selling so well in China that a Chinese company by the name of Tengzhong in Sichuan Province intends to buy the entire Hummer Co from GM. China has a legitimate reason to be concerned about this precedent, as it potentially opens the door to more special safeguard Section 421 petitions, similar to the replacement tire case filed by the United Steelworkers Union (USW).
Line in the sand
According to an article in Wall Street Journal this week, the Committee to Support US Trade Law, an umbrella group, has already sneaked a petition into the White House this month, asking for the same tariff protection.
The group includes the American Furniture Manufacturers Committee for Legal Trade, the California Fresh Garlic Producers Assn, the US Beekeepers, the Florida Fruit & Vegetable Assn, the Flower Growers of Puget Sound, and god knows how many more trade groups that we have never heard of.
In response, it seems that China is forced to draw a line in the sand, declaring "Protectionism stops here."
Much like the US government, the Chinese government also has to be accountable to a vexed domestic audience, some of whom have already blasted the US side on the Internet, with posts like "Why are we still purchasing so much US government debt?"
There is a long-lasting cancer in American politics that often makes the Sino-US relationship an easy scapegoat, targeted to assuage a domestic political base for a domestic political agenda.
This has happened time and time again in past election years, and it happens again today in times of economic hardship.
Barack Obama's action is further motivated by his desperate need of support from the unions and the left of the Democratic Party to rescue the health care reform debacle. Unfortunately, he is likely to get neither - the health care reform will end up with the same Hillary Clintonesque fate, all the while America cedes its historic leadership on free trade.
In two weeks, President Obama will play host to the G20 summit in Pittsburgh, Pennsylvania.
He will have a lot of explaining to do to President Hu Jintao and other world leaders, who just a few months ago jointly pledged to fight trade protectionism.
(The author is an associate professor of economics at the University of International Business and Economics. His email: johngong@gmail.com)
History tends to repeat itself - with the exception that the current US president waits a bit longer.
At the London G20 summit on April 2 this year, US President Barack Obama was still trumpeting together with world leaders a "joint call to fight protectionism," and agreed to extend for 12 months a pledge not to raise new trade barriers.
Four months later at a NAFTA (North American Free Trade Agreement) in Guadalajara, Mexico, he reaffirmed to Canadian and Mexican leaders "the need to reject protectionism."
Yet, last Friday evening, a "vicious, extortionate and obnoxious" decision came out of the White House, slapping a prohibitively high tariff schedule, starting from 35 percent in the first year, on replacement tires from China, albeit a watered-down version of the original ITC recommendations.
At this rate, the tire trade is guaranteed to head to the bottom of the Pacific Ocean, badly hurting American tire manufacturers and American tire consumers first and foremost. The Findlay, Ohio-based Cooper Tire immediately issued a press release denouncing the President's decision.
The Obama team makes it a practice of releasing unpalatable announcements on weekends, when they get buried under sports news and the punditry circle is out of town.
Regardless, the beggar-thy-neighbor protectionist measure hardly raised a ripple of concern among the otherwise domestically focused American public, which is now overwhelmed by the debate over healthcare reform.
Yet, the landmark tire decision sends shivers through the international business community, raising the prospect of ushering in a disastrous Smoot-Hawley era between the two most important trading partners in the world, at a time when the last thing the global economic recovery needs is trade protectionism.
The Ministry of Commerce in Beijing immediately announced a tit-for tat, or more appropriately, a chicken-for-tire, response, saying it would investigate imported chicken meat products from the US to determine if they were being subsidized or "dumped" below cost on the Chinese market.
Of course chicken meat production is subsidized by the US government, as anyone who has filed taxes using Form 1040 Schedule F knows what Box 7 on the 1099-G Form titled "Agricultural Payments" means. I quote from its instructions, "the amount of Department of Agriculture payments that are taxable to you."
The investigation also covers automotive products as well, potentially depriving Detroit of a much-needed source of revenue from the world's fastest-growing automobile market.
High-end American SUVs are selling so well in China that a Chinese company by the name of Tengzhong in Sichuan Province intends to buy the entire Hummer Co from GM. China has a legitimate reason to be concerned about this precedent, as it potentially opens the door to more special safeguard Section 421 petitions, similar to the replacement tire case filed by the United Steelworkers Union (USW).
Line in the sand
According to an article in Wall Street Journal this week, the Committee to Support US Trade Law, an umbrella group, has already sneaked a petition into the White House this month, asking for the same tariff protection.
The group includes the American Furniture Manufacturers Committee for Legal Trade, the California Fresh Garlic Producers Assn, the US Beekeepers, the Florida Fruit & Vegetable Assn, the Flower Growers of Puget Sound, and god knows how many more trade groups that we have never heard of.
In response, it seems that China is forced to draw a line in the sand, declaring "Protectionism stops here."
Much like the US government, the Chinese government also has to be accountable to a vexed domestic audience, some of whom have already blasted the US side on the Internet, with posts like "Why are we still purchasing so much US government debt?"
There is a long-lasting cancer in American politics that often makes the Sino-US relationship an easy scapegoat, targeted to assuage a domestic political base for a domestic political agenda.
This has happened time and time again in past election years, and it happens again today in times of economic hardship.
Barack Obama's action is further motivated by his desperate need of support from the unions and the left of the Democratic Party to rescue the health care reform debacle. Unfortunately, he is likely to get neither - the health care reform will end up with the same Hillary Clintonesque fate, all the while America cedes its historic leadership on free trade.
In two weeks, President Obama will play host to the G20 summit in Pittsburgh, Pennsylvania.
He will have a lot of explaining to do to President Hu Jintao and other world leaders, who just a few months ago jointly pledged to fight trade protectionism.
(The author is an associate professor of economics at the University of International Business and Economics. His email: johngong@gmail.com)
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