naked capitalism

When trade volumes tanked in the later part of 2008, quite a few observers expected a rise in protectionism. We haven’t seen a Smoot-Hawley analogue, a wide ranging measure that elicits retaliation. But that does not prevent policy makers from more targeted forms of gamesmanship.

Trade has retreated from front-burner coverage due to the modest recovery in activity. However, what is noteworthy is that most other surplus countries have seen a much greater fall in their surpluses than China. Moreover, some argue that the stabilization and improvement in trade activity is due to government stimulus, and as those programs tail off (and some are even now), trade volumes could give up their recent improvement.

So the situation is more fraught than it might appear. It should therefore not be a surprise that there is a fair bit of jousting on the trade front. One is a proposal is a de facto ban on Chinese tires. I would be surprised if this gets done, but then again, the Bush administration backed steel quotas. From ChinaDaily (hat tip reader Michael):

The proposal by a United States workers union to ban Chinese-made tires has US President Barack Obama bouncing between two very precarious positions.

The high-level tariffs, which would effectively impose a ban, will keep Chinese tire imports off US roads, strip 100,000 local laborers of their jobs and potentially spark a series of special taxes by other nations and regions.

On the one hand, Obama threatens to sour China-US relations…But on the other hand, Obama is wary of enraging the unions who support the case…

The proposed tariffs arose out of a petition brought by the United Steelworkers Union, which represents half of American tire makers. The International Trade Commission in April announced that tire imports from China had disrupted the US industry and proposed a three-year program of import relief, with a 55-percent-tariff on Chinese-made tires in the first year, 45 percent in the second and 35 percent in the third. Last Thursday, the US Trade Representative sent the recommendations to Obama…

Chinese tires have been “targeting the budget and no-brand replacement tire market for US consumers with severe budget constraints,” a sector that the US tire makers gave up long ago and are unwilling to enter again, said China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters in a letter to President Obama…

But the Chinese government will not turn away from issues that will harm the interests of Chinese industries. Officials from the Bureau of Fair Trade for Imports & Exports with the Ministry of Commerce said China has prepared an assortment of plans for countering different possible results from the Obama administration.

“We will surely protect local tire manufacturers from being hurt when needed,” they said.

China will likely take retaliatory measures against the US industries. The Tire Industry Association has petitioned China to launch restrictive measures.

The US had narrower anti dumping case about eighteen months ago, involving coated paper, where the facts seemed pretty clear cut, yet it came to naught.

More from Bloomberg:

The pipe case, the largest so-called countervailing duty complaint filed against Chinese-made products, was brought by the United Steelworkers union; U.S. Steel, the largest U.S.- based steelmaker; U.S. operations of Evraz Group SA, Russia’s second-largest mill; and Pennsylvania-based Wheatland Tube Co.

After the ruling is published in the Federal Register, importers of the product — known as oil country tubular goods — will have to deposit duties of the assigned amount, pending a final ruling later this year by the Commerce Department and a separate decision by the U.S. International Trade Commission.

Chinese officials have spent the past months trying to head off tariffs for the steel pipes and the separate case brought by the United Steelworkers union against Chinese auto tires.

“If there is really such a decision, China’s Commerce Ministry will have a formal response,” Wang Baodong, a spokesman for the embassy in Washington, said in a telephone interview. “On these anti-dumping charges, the Chinese government has been very clear.”

The EU is not happy with how China is behaving and the UK would like to turn up the heat a bit too, as reported in the Telegraph:

The Business Secretary, on a visit to Beijing to boost UK-China trade links, also warned on Tuesday that future “tension and disagreement” between China and the EU was inevitable as the trade deficit between China and Europe continues to grow….

Trade relations between Europe and China are under increasing strain, with a series of opinion polls showing that the European public is growing steadily more intolerant of China’s unfair trade practices.

Last week, the European Union Chamber of Commerce in China released a report containing 600 pages of complaints by European businesses which had fallen victim to China’s myriad hidden way of discriminating against foreign businesses..

Lord Mandelson said that while such trade was vital to reinvigorating Britain’s economy, there needed to be “constant dialogue” to keep up “legitimate pressure” on China’s government to open its markets more fully.

However, he said he did not agree with growing calls from some quarters of the EU for the need to take a tougher stance with Beijing, saying that constructive – as opposed to “conditional” – engagement was in the bests interests of both parties.

“China would say ‘we are a big, complex, fast-growing economy and you have to be patient, give us time’. I understand this, but equally China must understand when we in Europe feel we are being too hard done by.

“These things will even out over time, but in the meanwhile this is going to spark some tension and disagreement, but all of this must be managed because it is in all our interests to see China growing. We would all pay a colossal economic price if China was to fail economically.”

Whether these disputes continue to simmer or escalate into something worse depends on domestic employment in major economies. Were it to worse much, the pressure to Do Something would become intense.