US-China Trade Row: Middle Kingdom Strikes Back

♠ Posted by Emmanuel in ,, at 9/14/2009 04:17:00 AM
I don't claim to possess any special powers of insight, but my post below predicted a concerted pushback by China based on the vehemence of objections aired in official publications in the immediate wake of the Obama administration decision to apply tariffs on tires from China. The latest from our favorite one, the China Daily, admonishes the Chinese to unite against the tire tariff hike which is based on a "bunch of lies" according to a prominent industry representative. When jingoism is invoked, watch out, I say.

Lo and behold, the Chinese have now said they're launching--how do I characterize these actions--counteroffensives on two fronts. Of course, the tire tariffs occupy front and center stage on their website. Previously, I have discussed the chicken parts issue. Now, they are also bringing up one concerning automobile exports:
Just two days after the decision by the United States to levy heavy import tariffs on Chinese tires, the government here has reacted by launching an anti-dumping and anti-subsidies [countervailing duties] investigation into automotive and chicken exports from the US. The Ministry of Commerce (MOFCOM) Sunday did not label it as retaliation against the tire dispute, but said it acted simply in a response to domestic concerns [nudge-nudge, wink-wink; if this purely coincidental, my name is "Abe Vigoda"]...

The probe, which is in line with World Trade Organization (WTO) rules [unlike the US action, they imply], follows complaints from Chinese manufacturers that US-made products entered the nation's markets with "unfair competition" and harmed domestic industries, said the ministry in a statement. MOFCOM added it is still opposed to trade protectionism and committed to working towards global economic recovery.
So the commerce ministry of China is springing into action for possible unilateral action in a tit-for-tat with the USITC. Both are also claiming WTO-consistency. FYI, here is a brief description of the special safeguards granted to WTO member countries agreed to during China's accession, the now-infamous section 421(b)(1) of the Trade Act of 1974:
As part of China’s accession to the WTO, China accepted transitional remedies (while it fully adopts its WTO obligations) to address import surges into other countries that cause market disruption...As a matter of procedure, it is similar to section 201of the Trade Act of 1974. However, this safeguard applies only to imports from China and has a lower threshold for demonstrating possible harm and for securing temporary relief from import surges. Like section 201, section 421 relief is discretionary for the President of the United States. This relief expires 12 years after China’s WT) accession, or in 2013.
The Chinese contention at the moment is that tire imports from China have slowed in recent times as part of a general slowdown in trade activity. Still, I'm led to think part of it is getting some kicks in before this provision in China's accession agreement expires. (The tire tariffs should end in 2012.) Lest you think I'm making too much of this, there is some juicy talk of another US action brewing from the China Daily feature:
However, the US could also levy heavier tariffs on other imports from China, such as steel, aluminum and chemical products, according to an industry insider who asked to remain anonymous. The US Commerce Department on Thursday said it had made a preliminary decision to impose duties ranging from 11 to 31 percent on imports of Chinese steel pipes used for oil and gas wells.
It is inescapable for me to conclude that trade relations are degenerating. Instead of referrring matters to the WTO's Dispute Settlement Mechanism for arbitration, the countries involved are taking matters more into their own hands via unilateral actions like what the US has just done. As someone once said, screw the WTO, it's do-it-yourself time. This despite customary talks about being WTO consistent and so forth.

Expect further escalation, possibly some emphatic action by the Chinese alike the jailing of Rio Tinto executives or the official endorsement of SOEs reneging on derivatives contracts with Western banks. Make no mistake: for the Chinese, this is no laughing matter.

UPDATE: And on top of everything so far, China has now decided to take its complaint to the WTO. I keep hearing "these two countries are so interdependent that they won't take it further." The rate at which conflicts are arriving hard and fast, however, seemingly belies this notion. As noted above, there are important signs of escalation in terms of rhetoric and the rate of retribution. So, again look forward to 60 days of bilateral talks before China can ask the Dispute Settlement Body to form a panel.