Illustration by Kevin Kallaugher
This Monday, the U.S. International Trade Commission, in a 4-2 vote, recommended the imposition of punitive duties on Chinese-made tires according to Forbes.com. This “Section 421″ case now goes to the desk of President Obama. If he gives his OK and the special duties go into effect, some foresee a trade war with China. One analyst, Daniel Ikenson of the Cato Institute in Washington, called the case “High Noon for U.S. Trade Policy.”
Most everyone in Washington believes that America needs China more than the other way around. So, at this point, the administration treats Beijing with the respect and deference that the Chinese believe they deserve. As a sign of Beijing’s strength, American officials dutifully go to the Chinese capital much more than their counterparts come here.
Washington’s strategic calculus, however, is fundamentally flawed. Chinese leaders have not generally been impressed by acts of cooperation and gestures of friendship from foreigners, andthey have historically interpreted them as signs of weakness. If anything, they become more emboldened to pursue their own agenda when they sense they have foreigners at a disadvantage. So the Obama administration’s policies have the potential for moving Beijing officials, who still view the world in mercantilist and zero-sum terms, in the wrong direction.
There is never a good time to do that, but now is a particularly bad moment to be misjudging the Chinese. For one thing, economies around the world are delinking. In March, the normally optimistic World Bank said global economic output will contract this year for the first time since World War II, and that international trade will decline the most it has in 80 years. Globalization, which once seemed irresistible, is going into reverse.
The world’s first- and third-largest economies are not so big that they are immune to this trend. Americans are consuming less and saving more–their savings rate hit a 15-year high last month. As a consequence, trade between the U.S. and China is declining–last month China’s exports to America fell 26.9%. And as China’s overall exports decline–they fell a record 26.4% in May–Beijing will not be in a position to buy as much American debt as Washington would like. The American and Chinese economies are moving apart.
As these two countries pull away from each other, trade disputes will inevitably grow. The United States has complained about Chinese trade practices in the past, but Washington has almost always allowed Beijing to drag out preliminary negotiations and then delay World Trade Organization dispute proceedings, thereby postponing the imposition of remedies against blatantly illegal practices.
That tolerant attitude may not last, especially with a White House occupant who does not share his predecessor’s devotion to free trade.
I believe that there are great points made about China’s positioning towards the U.S. acts of cooperation and gestures of friendship. As the U.S. officials continue to show such signs of weakness and so openly express their need for China’s resources, there will continue to be an hugely trade imbalance. If Obama do sign off the “Section 421” case, maybe this will be the first step in leveling the trade playing field a bit. I know there are other factors that are involved but this would be a great start for the Obama administration showing it’s taking a stance.
What are your thoughts?
