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President Obama has acted to impose a 35% tariff on imported tires from China. This was done under a domestic US law and not through the provisions of the World Trade Organization. The US Steel Workers Union which had been lobbying for the action greeted it with praise. The Chinese Ministry of Trade has denounced it strongly.

China ‘Strongly Opposes’ Obama’s Tire Import Tariffs

China "strongly opposes" U.S. President Barack Obama’s decision to impose tariffs on tire imports from China and may refer the case to the World Trade Organization, the Asian country’s Ministry of Commerce said.

The U.S. violated rules of the WTO and the tariff imposition is a breach of the commitments made by the U.S. at the Group of 20 summits, the ministry said in a statement posted on its Web site, citing spokesman Yao Jian. The move will harm both countries’ interests and produce a chain reaction of trade protectionism, slowing world economic recovery, it added.

Last Spring at the G20 meeting Obama came out strongly in opposition to protectionist measures in response to the global recession. He used a signing statement for a piece of legislation that called for preference measure for US industries to disallow that provision. His latest action is a marked change of course.

It is certain that this will be a hot topic at the upcoming G20 meeting in Pittsburgh. China's quick reaction would seem to indicate that they are unwilling to let this pass quietly. As mentioned above they can file a complaint with the WTO. The finding on which Obama bases his action simply stated that the imports were a disruption to US markets and did not establish a basis for a dumping case which would be necessary under WTO rules.

China is of course one of the US's major creditors. I holds about $2T in US treasuries. It has already been taking some steps toward diversifying its reserve portfolio. If they were to speed up that process that would likely have significant impacts of US government finances. The interest rates of US government debt would rise and the value of the dollar on international exchange would likely decline.

This action is in and of itself is not necessarily an earth shaking event. Obama needs union support for his health care legislation. If this is basically a token gesture and not a fundamental shift in his previous trade policy, then it will probably be a minor drama. However as with all things in international diplomacy there is a risk of reaction and escalation. It will be very interesting to see how this unfolds.

One thing is for sure, if you are in need of new tires you'd do well to rush and get them now. The price will be going up.

Originally posted to Richard Lyon on Sat Sep 12, 2009 at 01:22 PM PDT.

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Comment Preferences

  •  My only regret is that the tariff isn't higher. (9+ / 0-)

    This country desperately needs a return to sensible trade barriers in order to protect domestic industry.  Given China's sheer volume of capacity, they can distort the market for almost any product in the United States if they're not checked.

    Nothing is true; everything is permitted.

    by jumpjet on Sat Sep 12, 2009 at 01:29:01 PM PDT

  •  If China were to "diversify" (4+ / 0-)
    Recommended by:
    ChurchofBruce, WisVoter, danmac, wblynch

    its portfolio from Treasuries, they only have two options,
    (1) buy other dollar- denominated assets,
    (2) buy non dollar-denominated assets.

    If they buy other dollar- denominated assets, then that means equities, corporate bonds, agencies, or direct investment. The value of these instruments is determined by the success of the US economy. Like it or not their investment is tied to US success.

    If they buy non dollar-denominated assets, they have to sell dollars on the open market. That will reduce the dollar exchange rate, which will hurt their exports to the US, costing jobs in China, and potentially the stability of their own government. So they won't be doing that suddenly either. And if they do, then good. The current US trade deficit is still too large and non sustainable in any case.

    •  Not necessarily. (3+ / 0-)
      Recommended by:
      WisVoter, Micheline, MichaelNY

      If they buy other dollar- denominated assets, then that means equities, corporate bonds, agencies, or direct investment. The value of these instruments is determined by the success of the US economy. Like it or not their investment is tied to US success.

      To the extent that they invest in US based enterprises with multi-national markets they are not exclusively tied to the US economy.

      China is putting much emphasis on diversifying its export markets and stimulating the growth of domestic consumer markets in an effort to make them lees dependent on exports to the US. As a result they are now the world's largest exporter.

      They are not helpless.

      •  The problem is that the decoupling theory (1+ / 0-)
        Recommended by:
        WisVoter

        has been proven wrong. Yeah they have been able to stimulate their economy in the past year, but if the US crashes due to their selling of Treasuries driving up interest rates here, the entire world will crash, including them. And this time there won't be enough stimulus left to make up for the loss of export markets. In such a scenario, the US government will survive. Its based on such things as the Bill of Rights and separation of powers that goes well beyond any economic problem. We survived the Depression. The Chinese government on the other hand, is solely based on economic performance.

        This is why the fear that China will suddenly withdraw credit is unfounded. The only way that would happen is if they stop running huge surpluses with us.

  •  Tha law was passed as a condition (1+ / 0-)
    Recommended by:
    Nick Zouroudis
    of US consent to China's accession to the WTO, so it seems unlikely the Chinese will prevail if they file a complaint with the WTO.

    We are building a team that is continuously being built. - Sarah Palin

    by burrow owl on Sat Sep 12, 2009 at 01:49:47 PM PDT

  •  Good for them... (2+ / 0-)
    Recommended by:
    ChurchofBruce, wblynch

    It should have went up the full 55%. Still, a step is a step.

  •  This will likely backfire (3+ / 0-)
    Recommended by:
    Sparhawk, Richard Lyon, MichaelNY

    and is simply not the right time.  China holds most of the cards, as we need interest rates to remain low in order for a recovery to happen and if they hold off on buying our debt as a retaliation, interest rates will jump and it will hurt our economy.  The worries over the dollar falling are overdone, since it is currently at year lows already even with a rally in treasuries.

  •  Of course they did, they're bullies. (0+ / 0-)
  •  Let me clarify your last sentence (0+ / 0-)

    Buy an American made tire now before its price goes up due to less competition. Chinese tires are shit and will get you and your family killed.

  •  About fucking time. (0+ / 0-)

    I'd like to see a tariff applied to all Chinese imports equal to the difference in wages and regulatory compliance costs.

    It should be no cheaper to import goods from China than to make them here, and if it isn't, you'll see every manufacturing job we've lost come back almost overnight.

    Protectionism is a good word.

    I want my government protecting the interests of it's citizens, and only it's citizens.

    --Shannon

    "It is better to die on your feet than to live on your knees." -- Emiliano Zapata Salazar
    "Dissent is patriotic. Blind obedience is treason." --me

    by Leftie Gunner on Sat Sep 12, 2009 at 03:44:46 PM PDT

    •  Re (2+ / 0-)
      Recommended by:
      Richard Lyon, MichaelNY

      For every item you put a tariff on, the interests of every citizen of the US except the manufacturers of said item are injured since they are forced to pay more for something they could have gotten for cheaper.

      Sure the US tire manufacturers are hurt by free trade, but the $11/hour waitress gets much cheaper tires and hence a higher standard of living.

      •  The interests of American workers (0+ / 0-)

        Are injured by free trade.

        Prices on items imported from cheap-labor countries go down much, much less than do the wages of workers.

        Free trade is destroying American workers' standard of living. Because without it, that waitress making 11 bucks an hour would be making 30 bucks an hour in a factory.

        --Shannon

        "It is better to die on your feet than to live on your knees." -- Emiliano Zapata Salazar
        "Dissent is patriotic. Blind obedience is treason." --me

        by Leftie Gunner on Sat Sep 12, 2009 at 07:00:29 PM PDT

        [ Parent ]

        •  Re (0+ / 0-)

          Producing goods more cheaply is always better for the economy than producing them more expensively. The producers get hurt, but everyone else in the entire economy prospers.

          I do not believe that make-work jobs (which is what you are advocating) are good for anyone. The point of the economy is to find a way to make yourself useful to the economy at an appropriate price point.

          If you perform some useful skill, but at a price that's much higher than someone else, your price has to come down, it's as simple as that. If you want to command higher wages, upgrade your skill set.

          Why should anyone be forced to pay extra for goods and services when cheaper ones are available? How is that fair?

          •  Government creates economies, (0+ / 0-)

            by defining the rules under which economic activities take place.

            Rules can only be made with reference to goals, otherwise, why bother?

            I think "to protect the wages of American workers" is  a perfectly legitimate goal of economic rule making by an American government.

            Alexander Hamilton agreed with me, and for 200 years, we followed his idea. Import tariffs over that time averaged 30%, and the United States was simultaneously the world's manufactory and the world's most productive and prosperous economy.

            In 1980, the United States was the world's largest importer of raw materials, and the world's largest exporter of finished goods. For at least four centuries, this has been the definition of a successful economy.

            We are now, thirty years later, the world's largest exporter of raw materials and the world's largest importer of finished goods. For those same four centuries, this has been the definition of failing, even a colonial, economy.

            What has changed in those thirty years?

            Economics? No.

            Human nature? No.

            What has changed is the ascendancy of a political / economic ideology, called Libertarianism in the US and Neo-Liberalism in Europe. Fundamental to this ideology is the idea that high aggregate wages are somehow bad for an economy, and that it should therefore be a goal of economic policy in the first world to drive those wages down.

            I suspect that nobody who subscribes to this idea has ever set foot on the ground of a country where wages are really, really low. I have, and trust me, it's nowhere you'd ever want to live.

            You'd be food.

            --Shannon

            "It is better to die on your feet than to live on your knees." -- Emiliano Zapata Salazar
            "Dissent is patriotic. Blind obedience is treason." --me

            by Leftie Gunner on Sat Sep 12, 2009 at 08:29:56 PM PDT

            [ Parent ]

  •  Hard to play 'hardball' with your shylock..... (3+ / 0-)
    Recommended by:
    Sparhawk, Richard Lyon, MichaelNY

    When you owe someone more than you can POSSIBLY pay back - and are barely able to make the vig, you don't have much leverage.....

    Someone's legs might get broken - and it won't be China.

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