Moreland Property Group » International Trade

The trade war with China has begun.

Brad Rodgers — Mon, 14 Sep 2009 11:34:26 +0000

On the eve of September 11th, 2009 the United States fired the first shot in the trade war with China. That was the day that the President signed an order to increase the tariff on imported Chinese tires by 875%! With a swift stroke of the pen, the tariff went for 4% to 35% and the trade war had begun. China responded almost immediately accusing Washington of “rampant protectionism”. According to Beijing, the action is not only ill thought out in a time of economic mayhem, but also violates WTO rules and goes against specific promises made at the G20 summit this April.

China has promised a retaliatory action and is currently scrutinizing the imports of American poultry and autos. The United States claims that any retaliatory effort would be “inappropriate”.

In signing the order, the President was responding to a petition from the United Steelworkers Union who was concerned about not being able to be competitive with Chinese tires. The President stated that the new tariffs would save the jobs of 7,000 Americans.

What is interesting in all this is that the American consumer is left out of the discussion. The consumer wants choices and value. By implementing this order, the President is insisting that the American people pay more for their tires. He has removed a low cost choice from their available options. In the end, it is the consumer who pays more, buys less, and suffers the most.

Round 2 of the Chinese trade war

Brad Rodgers — Thu, 18 Jun 2009 21:23:07 +0000

Round 1 consisted of the US and China each attaching “Buy Domestic” requirements to their stimulus packages and both screaming that they were unfair. Today, in Round 2, the International Trade Commission ruled that China had been unfairly dumping tires in the US. The tidal wave of low cost Chinese tires had disrupted the US tire market and forced tire plant closings by Goodyear, Continental Tire, and Bridgestone/Firestone. However, none of these companies were the complainant. The group that was crying foul was the United Steelworker union.

As a consumer, I like having the Chinese tires as an option. Even if I don’t buy their tires, the low cost option makes the higher quality tires become more price competitive. That’s a good thing for me. I can then take the money I saved and buy more groceries, or maybe a movie night for the family. Either way, my disposable income works its way into the US monetary system. You’d be hard pressed to make a case that a low cost (as long as it is safe) option is a bad thing for the consumer.

This begs the question of who is harmed then. Clearly, the Steelworkers feel that they have been harmed. However, last I checked this was somewhat of a free market economy. If they can make a tire that performs as well and is cost competitive, then what is the problem? I guess the problem is that they can’t compete. That is a problem – on many levels.

I can remember paying $750 for a DVD player. Not a really nice one, mind you. This was when they first came out and it was an average player. Today, thanks to low cost producers, you can get a DVD player for about $35 – maybe less if you look hard enough. Is that bad for the economy?

China says “Buy Chinese” and the US screams…

Brad Rodgers — Thu, 18 Jun 2009 20:58:27 +0000

What, exactly, did the US expect to happen. As we all know, an integral part of the American Recovery and Reinvestment Act of 2009 was the “Buy American” provision. This clause stated that, where doing so did not increase the cost by over 25%, any projects that utilized ARRA funds were to be constructed of American made materials. While the outrage from China drew the most press, other countries were also voicing their disgust at the protectionist efforts. Others discounted the Buy American clause as nothing more than a nuisance. However, we have already seen some very real consequences of this “nuisance”. There is one example of a project where the sewer pipes were American made, but he joint pieces were Canadian. Every bit of pipe that had been laid had to be ripped up and redone at the governments expense.

Now, China comes out today and says that all of their projects completed under their $585 billion stimulus plan must utilize Chinese raw goods, where possible. This has again sparked shouts of anger. But this time it is the US that’s angry. Although they have enacted the very same regulations domestically, several US groups are demanding that China remove these isolationist requirements.

Well, I’m not sure exactly what the US groups expected. When we take the lead and implement it here, we can’t be too upset when it is implemented elsewhere. I think we are seeing the beginnings of a significant trade war with China. (Keep in mind we are already fighting the beginning stages of one with Mexico). We may end up on-shoring our manufacturing not out of choice, but because we have no other options.