Mr. Obama's Trade War
If President Obama thought he could pander to his domestic political base without any consequences abroad, he needs to think again. Beijing's response to the tire tariffs Mr. Obama announced late Friday evening is a warning that America's trading partners won't take protectionism lying down.
China's Ministry of Commerce announced Sunday that it will launch antidumping investigations against imported U.S. auto parts and chickens. The move is being interpreted as retaliation for Mr. Obama's imposition of a 35% tariff on cheap Chinese tires imported into the U.S. (Beijing denies a link.) Apparently Beijing wasn't mollified by the fact the tariff is less than the 55% domestic lobbies in the U.S. had sought. The Commerce Ministry also put out a strongly worded statement denouncing the tire tariffs and not-so-gently reminding Mr. Obama of the Group of 20 statements he has endorsed about the importance of resisting protectionism amid a world-wide slowdown.
On their own these measures won't mark dramatic protectionism. Many imports of U.S. poultry already face stiff limits stemming from a pre-existing trade dispute over a U.S. ban on some Chinese chickens. Beijing had already slapped duties on car parts during an earlier trade dispute, too.
Rather, the Chinese government may want to send a signal to discourage Mr. Obama from future protectionism. They have reason to worry. Unlike in normal antidumping cases, Mr. Obama can't plead that his tire decision was simply made by career bureaucrats following a standard rule book. The trade law he applied, Section 421, gives the President full discretion, and Mr. Obama signaled he's willing to use his discretion to pay back domestic political supporters like the United Steelworkers union that filed the tire case. And because Mr. Obama's decision sets a precedent for similar cases, Beijing has to worry it will face more protectionism in short order if it doesn't nip this trend in the bud now.
This kind of Chinese response was predictable, if the Obama Administration had cared to read the signs. As a political matter, Beijing can't afford to do nothing. The China Rubber Industry Association, a trade group, puts the potential cost to the Chinese economy of the U.S. tariffs at $1 billion and 100,000 lost Chinese jobs. The Commerce Ministry said yesterday it wants to discuss the issue with the U.S. at the World Trade Organization, but a formal WTO challenge would face an uphill climb. Section 421 was specifically allowed as part of China's agreement to join the WTO in 2001.
Plus, China has its own protectionist lobbies at home. "Chinese poultry companies have been struggling over the past couple of years amid bird flu and a flood of imports, and the financial crisis is making that worse," Ma Chuang of the China Animal Agriculture Association, told Bloomberg over the weekend. Tire tariffs from the world's traditional free-trade leader makes it harder for governments like China's to stand up to such pressure from their own domestic interests.
That doesn't make Beijing's apparent retaliation right, of course. Beijing could best claim the global economic leadership role it craves by resisting tit-for-tat protectionism and instead further reducing its own subsidies, trade protections and limits on foreign investment. That might be wishful thinking, but at a minimum it would be wise to drop these antidumping cases as soon as attention has shifted elsewhere.
The bigger lesson here is for Mr. Obama, though. He appears to have thought he could both appease his far-left antitrade supporters in the U.S. and paper over the resulting disagreements with America's trading partners. No such luck. Instead he ceded America's historical leadership on trade when he imposed the tire tariffs. Now China's weekend moves are offering a first sign of where this will end up if he doesn't rediscover the virtues of free trade soon.
Is this a looming trade war between the US and the world's largest holder of US debt? Or is it saber-rattling setting up the G-20 meeting in Pittsburgh
http://online.wsj.com/article/BT-CO-20090914-702705.html
European stock markets traded lower Monday, weighed down by fears of protectionism and a possible US/China trade war.
http://www.marketwatch.com/story/dollar-gives-up-early-gains-after-trade-war-fears-2009-09-14
By marketwatch The US dollar slides against major rivals in late morning, giving up a small lift amid rising US-China trade tensions
