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September 14th, 2009

China: Of course you realize this means war

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This is the sort of event that many people won’t hear about in their daily news broadcast, but it could have far-reaching consequences:

A full-blown trade row erupted between the US and China after Beijing accused Washington of “rampant protectionism” for imposing heavy duties on imported Chinese tyres and threatened action against imports of US poultry and vehicles.

Trade relations between two of the world’s biggest economies deteriorated after Barack Obama, US president, signed an order late on Friday to impose a new duty of 35 per cent on Chinese tyre imports on top of an existing 4 per cent tariff.

In his first big test on world trade since taking office in January, Mr Obama sided with America’s trade unions, which have complained that a “surge” in imports of Chinese-made tyres had caused 7,000 job losses among US factory workers.

The Chinese are accusing the US of “trade protectionism,” a term which means that Obama is imposing tariffs — an extra tax — to increase the price of imported tires for our cars and trucks. The United Steelworkers union petitioned the Administration, complaining that Chinese tire imports have nearly tripled in the past few years.

China is protesting the move as as a violation of international trade laws agreed to by both countries and is threatening to impose punishing tariffs on US goods exported to China including US poultry and vehicles.

It’s not clear whether the US has the support of the World Trade Organization, but the Administration claims that it’s simply enforcing trade rules:

“This is simply about enforcing the rules of the road and creating a trade system that is based on those rules and is fair for everybody,” White House spokesman Robert Gibbs told reporters on Air Force One as President Barack Obama traveled to talk about his healthcare initiative.

If nothing is done, the effect will be a sharp spike in the price of some imported tires — and possibly the loss of more jobs in America. There’s a certain irony in that the steelworkers union is prepared to sacrifice jobs in other industries to try to preserve some in its own.

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3 Responses to “China: Of course you realize this means war”

  1. hanmeng Says: September 14th, 2009 at 9:39 am

    “A certain irony”? Unions prosper on protecting their workers at the expense of everyone else.

  2. Lucia Says: September 14th, 2009 at 2:06 pm

    Does this mean cheaper tires and chicken for US consumers?

  3. Tim Manni Says: September 14th, 2009 at 2:57 pm

    Hey Lucia,

    In a word no.

    The debate (putting it nicely) has to do with our imports from China (tires) and China’s imports from the U.S. (chicken and auto parts).

    Since the both sides are imposing tariffs, it basically means that the U.S. government is saying to its people that the cost of tires will be going up, and the Chinese govt is telling their people the cost of chix will be going up.

    Good to hear from you,
    Tim

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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