Well this is fun. So far, Obama's hardline on China hasn't been all that impressive after campaigning about how he'd take a more manly approach to dealing with these trade miscreants. The Obama administration has now taken action on the US International Trade Commission's suggestion that tariffs be slapped on Chinese tires being sold in America. A mighty 35% levy will soon be implemented. These tariffs will be in place for three years, with the tariff being reduced to 30% then 25% in subsequent years. (Originally, the USITC suggested 55%, 45%, and 35%). Aside from my previous post on the initial request, here is what the USITC suggested prior to elevating the matter to the White House:
[Investigation No. TA–421–7]The Chinese are understandably unhappy. However, the tone of their displeasure has moved up from the usual "regret" to saying the PRC "strongly opposes US protectionist tariffs" in America's "serious act of trade protectionism." The official news agency Xinhua hints that this unilateral action may be raised to the WTO Dispute Settlement Mechanism by quoting a WTO official who says it's a "serious cause of concern" while attending the World Economic Forum gathering in Dalian, China. It's strange how this spat is getting little play in the Western press while Xinhua has plastered it into China's national consciousness.
Certain Passenger Vehicle and Light Truck Tires From the People’s Republic of China; Determination On the basis of information developed in the subject investigation, the United States International Trade Commission (Commission) determines, pursuant to section 421(b)(1) of the Trade Act of 1974, that certain passenger vehicle and light truck tires from the People’s Republic of China are being imported into the United States in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products...
The Commission instituted this investigation following receipt, on April 20, 2009, of a petition filed by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union.
As always, I am getting tired of this shadowboxing. It's high time these two antagonists cut the crap and started fighting already for we're likely better off if that happens than we are now for reasons I've given long ago. Certainly, the US is picking an interesting time to become more belligerent. Part of it is certainly due to Obama throwing some red meat to union supporters who have thus far been disappointed with his pussyfooting with the Great Red Menace. Xinhua quotes the IIE's Gary Hufbauer at the Peterson Institute saying Obama's seeking support on health care by appeasing this constituency. It's time to shore up those approval ratings, eh? OTOH, the Chinese are not beyond declaring derivatives contracts with Western banks null and void if their outcomes are unfavorable or jailing Western executives (and their collaborators) operating in China who dare sidetrack the people's will.
China should hit back hard, for sure. In response, it wouldn't hurt if "China Currency Coalition" Obama finally showed some backbone. Who does he think he is, Jimmy Carter? Don't be chicken; let's see who's boss in the global political economy.
UPDATE 1: The bellyaching continues. A sloppily written China Daily article quotes an industry source saying 100,000 jobs will be lost due to this tariff. Once more, I think all the attention that's being given by official sources is a prelude to further Chinese action. F'rinstance, there's mention of most major American tire manufacturers operating in China. Maybe their executives in the PRC should be thrown in jail like those Rio Tinto lowlifes for not doing enough to forestall this outcome. Enough talk: what are you going to do about it, Chairman Hu?
UPDATE 2: There is some confusion emanating mostly from finance blogs about the uniqueness of other countries invoking safeguards against China. For example, Naked Capitalism says "This is the first time that rule [on safeguards] has been used as the basis for an action against China, and China may feel it important to fight that precedent." This is clearly mistaken as there have been 28 notifications already made to the WTO invoking this provision. The Big Picture even compares this action to the passage of Smoot-Hawley [!] With all due respect to our finance blogging colleagues, I would generally advise readers to first consult trade, international law, and international political economy blogs that have more expertise and regular commentary on these matters.