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Looming Trade War With China Over Tires?

China fired back at the U.S. today, filing a complaint with the World Trade Organization over the Obama administration's Friday decision to impose tariffs on vehicle tires imported form China.

Is this a looming trade war between the U.S. and the world's largest holder of U.S. debt? Or is it saber-rattling setting up the G-20 meeting in Pittsburgh later this month?

Either way, the world markets are spooked. They opened down this morning, responding to Friday's news, and had been trading flat all day before ticking up in afternoon action. China's retaliation has depressed the Asian markets, which are trading now.

In his speech to Wall Street this morning, President Obama defended the tariffs, saying they are part of the enforcement of existing trade treaties between the two nations. You can read The Post's Peter Whoriskey and Anne Kornblut on the imposition of the tariffs by clicking here.

The U.S. is a huge market for Chinese tires and the U.S. thinks China is violating trade treaties by pricing their tires too low, harming U.S. manufacturers. China naturally disagrees. The dispute will be mediated by the WTO. The volume of Chinese tires imported to the U.S. has tripled over the past five years.

If this is mere paper-pushing trade scuffling designed by China to get a better trade deal with the U.S. at the G-20 summit, then that's less worrisome.

If, on the other hand, this escalates in a real trade war, then that's a potentially disastrous outcome. All you have to do is Google "Smoot-Hawley" to find out what Draconian, protectionist tariffs imposed by the U.S. in 1930 did to shove America into the Great Depression.

Trade wars are always bad. They can be especially damaging when an economically fragile nation -- the U.S. -- is trying to swim out of a riptide recession.

-- Frank Ahrens
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By Frank Ahrens  |  September 14, 2009; 2:37 PM ET
Categories:  The Ticker  | Tags: China, Smoot-Hawley, protectionism, protectionist, trade war  
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Comments

University of Texas at Austin economist Michael Brandl suggests this action by Pres. Obama is a gamble, but one that needs to be played out to force China away from its historical one-sided trade activities. Watch http://www.youtube.com/watch?v=b0bxZ_PFypM

Posted by: RobMeyer | September 14, 2009 3:14 PM | Report abuse

Smoot-Hawley was enacted *after* the worst of the Great Depression. GDP had fallen by 50% *before* the passage of Smoot-Hawley, Mr. Ahrens. Please, go read some history! When SH took effect, our GDP had fallen by 45% to $93 billion. Subsequently, GDP *grew* at an annual rate of at least 3.5%. It grew, in fact from $93 billion to $126 billion by 1937. A "pro-global economy" Congress abandoned SH in 1937, that is during the big build up for Lend-Lease and our preparations for World War II, massive government and private investments and buildup, thereafter we fell straight-away into another depression. Unemployment doubled, reaching 20%. POh, too be sure, Wall Street and corporations made tons of money, but the overall economy plummeted. They say that those ignorant of history are doomed to repeat it. I wonder what the punishment is for those rats that rewrite it?

Posted by: mibrooks27 | September 14, 2009 4:31 PM | Report abuse

Are chickens the only thing we export to China ? Funny, a tariff on a chicken. What ever happened to America's Industrial strength ? Obama better kiss up to China or they'll quit giving him all the loans to keep us afloat. Maybe China will underwrite Obama's Health Care adventures ?

Posted by: wasaUFO | September 14, 2009 4:55 PM | Report abuse

wasaUFO - A mere 5.4% of our exports are of manufactured goods. Everything else is either raw materials or "exotic financial instruments" (paper pushed by Wall Street and just three large U.S. based banks). 95% of China's exports are manufactured goods, 83% of Germany's are manufactured goods. And something you may not know about China and the "trade war" these silly pundits blather about, China is proposing to enact tariff's on *exports" to the U.S., manufactured *exports*!!! This would be a great time to rethink our entire economic model. Let's dump free trade and globalization altogether. We simply do not need imports other than a very few raw materials, like oil. Better than 70% of our economy is dependent upon domestic spending and we would thrive in any trade war, would likely thrive and grow. A very few people, virtually all of them the Wall Street sorts the author of this "article" represents would be inconvenienced, but the country as a whole would be much better off.

Posted by: mibrooks27 | September 14, 2009 5:35 PM | Report abuse

I wonder why Americans would buy inexpensive tires imported from China? Oh yeah, too many of us can't afford better tires because we have been subjected to a "levelng" of the pay scale, through wage stagnation and pay cuts to knock us in line with other countries.

Of course, many imported products aren't cheaper to buy than those produced here; they simply cost less to produce and give the corporate superpowers extra padding in their profit. Good old profit and happy shareholders. That's what it boils down to...

Posted by: dlkimura | September 14, 2009 6:28 PM | Report abuse

mlbrooks27 is absolutely right. The author of this piece and many over the years have created this myth or boogyman about Smoot-Hawley. These free-trade-no-questions-asked cheerleaders would do themselves a favor if they would check some history books.

Posted by: Figaro1 | September 14, 2009 11:10 PM | Report abuse

The comments to this entry are closed.

 
 
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