Of Chickens, Tires, and Stupidity
In a September 17, 2009 editorial entitled “Economic Vandalism,” the Economist decried the Obama administration’s decision to implement harsh tariffs on tires imported from the People’s Republic of China as “bad politics, bad economics, [and] bad diplomacy.” It is hard not to agree with this assessment. At a time when the global economy is already faltering and the US desperately needs Chinese support on a wide range of key issues, it can hardly afford to alienate China with protectionist trade policies aimed primarily at generating domestic political capital.
The importers of the newly-tariffed Chinese tires will no doubt simply turn to other developing nations for their supply of inexpensive imports, and the United Steelworkers’ Union which originally petitioned the Obama administration to take action against the Chinese tires will have in essence gained nothing. Yet the trade dispute resulting from Obama’s decision to implement this tariff has potentially wide-reaching implications. Indeed, the fallout has already begun. After an outpouring of anti-American rhetoric from the Chinese internet community, the country’s commerce ministry announced that it would begin investigations aimed at implementing tariffs on imports of chicken and automotive products from the US. While China will barely notice the loss of a mere $1.3 billion of tire exports — a relatively miniscule 0.38% of its total exports to the US — the floundering American automotive industry cannot afford to lose a market of 1.33 billion consumers. GM, for instance, sells more cars in China than anyone but Volkswagen, and the retaliatory action by the Chinese government will further undermine GM’s already shaky financial state.
The impact of the brewing mini-trade war between the United States and China has the potential to reach far beyond the tire, chicken, and automotive industries. During the Great Depression in the 1930s, a rise in protectionist trade policies is widely credited with prolonging the recession and exacerbating its effects. With the world’s economy still on shaky footing, no country can afford to engage in self-serving protectionism. Furthermore, in capitulating to the protectionist demands of the steelworkers’ union, the Obama administration has set a dangerous precedent, inviting a flood of similar demands from other special interest groups. In addition, the United States, long the leading cheerleader of free trade and the global economy, has opened itself to accusations of engaging in hypocritical, politically-motivated policymaking. President Obama, who at one point specifically pledged to not engage in “self-defeating protectionism,” has now lost vital credibility in dealing with economic issues.
Moreover, the Obama administration desperately needs Chinese cooperation on a number of key policy issues. Its permanent seat on the UN Security Council and corresponding veto power means that China’s support is critical in addressing the nuclear weapons programs of North Korea and Iran. Likewise, PRC backing of any new international climate change legislation is essential. Finally, continued collaboration with China on economic issues, including yuan valuation and US treasury bonds, is also crucial.
The Chinese response to Obama’s actions was justified. China did not, so to speak, fire the first shot. The United States, especially with its role in leading the world into recession, no longer possesses the ability to unilaterally take economic action against other nations without facing reprisals — nor should it. China’s domestic economy is growing rapidly, reducing its reliance on exports to the US and placing it in a position to be able to call out hypocritical and counterproductive American policies. For once, the tables have been turned: the United States now has far more to lose than China.
