Trade War Watch 10: WTO Accepts Chinese Tire Complaint, Trade War Escalates

In September 2009, incoming President Barak Obama slapped a 35 percent punitive tariff on Chinese car and light truck tires exported to the USA. That, in addition to an existing 4 percent duty. No American tire manufacturer had requested the boneheaded move. It was a thank-you to the steelworkers union. Cooper tires openly opposed the action. Ironically, US tire companies were hardest hit by the measure, because they had moved most if not all of their budget segment tire production to low labor cost overseas sites. No job was created in the US. Many were lost. Low cost tire manufacturing simply moved to other overseas countries, which were the only beneficiaries of the useless war.

TTAC warned of a trade war, predicted that China will drag the USA in front of the WTO, and that China would take tit-for-tat measures. All of it became true.

In the trade war dept., China slapped import tariffs or restrictions on imports of U.S. nylon, industrial acid, chicken and other products. It also has initiated an investigation into whether U.S. automakers are selling below cost, or “dumping”, cars in China. The U.S. retaliated, looking into allegations of dumping in other products, amongst those arcane items such as carbon magnesia brick. Last month, the U.S. slapped punitive tariffs on imports of Chinese steel pipes, a $2.8-billion market. Google is making on-again, off-again threats of leaving China. The trade war is escalating.

As predicted, China dragged the USA in front of the WTO. As reported by Reuters, the WTO accepted China’s complaint and agreed to convene a panel. WTO will formalize the panel at a meeting on Jan. 19. The three-judge body will look into whether the U.S. violated WTO rules. According to the Wall Street Journal, “the panel will publish a decision after nine months of investigation. If it finds that the U.S. unfairly imposed the tariffs, it could authorize China to put tariffs on key U.S. imports, up to the amount lost by Chinese exporters because of the duties. The U.S. can appeal, meaning the case could last several years.”

Says Reuters: “The time it will take to fight the case, and then revoke the tariff if Washington loses, means the tire tariffs will have been in place for most of their original three-year duration.”

The WTO complaint is widely seen as a blocking action by the Chinese to discourage the U.S. from further invoking the special safeguard clause that was rammed down the Chinese’s throats when they joined the WTO in 2001. Other safeguard complaints are piling up, and the Obama administration appears trigger-happy. A moronic trade war with Japan over nearly non-existent U.S. car exports to Japan was avoided by Japan giving in to nonsensical demands of Detroit’s automakers, which hat already mobilized Hillary Clinton and Betty Sutton.

The discriminatory safeguard clause against Chinese imports will expire in 2013, probably before the current tire complaint will have run its course. A lot of damage can be done in these three years. Trade wars exert a big price, paid by the consumer at the check-out counter. Prices of tires are already going up, and higher rubber prices will exacerbate the matter.

Students of history may note that trade wars during recession times can lead to full blown depression.