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Tariffs on Chinese tires affect the global economy

Friday, September 18, 2009 | 12:16 p.m. CDT

Stuart Loory, Lee Hills Chair in Free-Press Studies, Missouri School of Journalism: Last week, President Obama declared an increase in tariffs on tires imported from China from about 4 percent to 35 percent. The Chinese reacted by upping the tariff on chicken meat and automobile parts from the United States. China is now the U.S.’s second largest trading partner after Canada, and it holds trillions of dollars in American treasury bills. This means that it supports the U.S. big time and could bring ruin to the American economy by cashing in on those bills. The U.S. dollar, the favorite denomination of international trade, is again sharply dropping, and economic improvement around the world is not constant. These tariff disputes present new complications as a group of 20 nations prepare to meet next week in Pittsburgh to discuss the world economy. The Chinese are being circumspect in their criticism of the U.S.; give us insight of what is going on from the Chinese point of view.

Paul James, host, “People in the Know,” China Radio International, Beijing: This comes in advance of the G-20, where President Hu Jintao is set to meet Obama, and domestically, it is leading up to the 60th anniversary of the founding of the People’s Republic of China. It may be viewed in part as the Chinese asserting themselves proactively to what they view as protectionism. Tire manufacturers here have said the tariffs won’t hurt them much. Other lobby groups say it may result in 100,000 jobs lost, but that is small compared to the 20 million that were lost when the financial crisis hit.

Loory: Much of the tire manufacturing in China is conducted by American firms that are producing tires inexpensively in China and then importing them back here. Why is China singled out on this tariff when there are others tire manufacturers around the world that we also import from?

Nicholas Lardy, senior fellow, Peterson Institute for International Economics, Washington, D.C.: The labor union representing tire workers took this case to the International Trade Commission, which is an independent U.S. government agency. They recommended tariffs, and then the president had to say yes or no. China has agreed to a “safeguard” where the union does not have to show any injury to the industry to argue for tariffs, only market disruption, which is easy to argue any time markets are growing. China is the only country that has ever agreed to this, and the Chinese consider it discriminatory. But, Obama is correct when he says it's legal; the Chinese agreed to it in documents to the World Trade Organization.

James: You’re right, this is more for domestic consumption than to resolve the dispute. But the Chinese government is trying to head off any additional actions, not just in the tire industry, but overall. The U.S. Steel Corp. filed motions against Chinese pipe manufacturers. The Chinese government is worried this could snowball.

Loory: How is this situation being viewed in Germany and in the European Union?

Greg Benzow, Deutsche Welle Radio, Bonn, Germany: They always look at relations between China and the U.S. with a wary eye because if China gets in a huff, it could also have an effect on goods to and from Germany. Germany is one of the biggest tire manufacturers, but this is not affecting them. It is another piece of unwelcome news in an automotive industry that is already on the ropes.

Loory: Is this situation attracting attention in Latin America?

Vicente Albornoz, director general of Cordes, economic think tank, writer, El Comercio newspaper, Quito, Ecuador: Not much attention, but we should look at these types of events with a different eye. Tires will be cheaper for anyone in the world except for Americans. There will be a bigger supply in the rest of the world, so with the same demands, there will be lower prices for Chinese tires.

Loory: In South Africa, is that pretty much the same situation?

Lihle Mtshali, business editor, The Times, Johannesburg, South Africa: There has been a concern of protectionism because the U.S. is one of the largest trading partners of South Africa. We export cars to the U.S.

Loory: China is interested in establishing good economic relations around the world, Ecuador included, correct?

Albornoz: Yes. There is a lot of Chinese investment in telecommunications, oil and hydroelectric power. We have seen a growing interest of Chinese companies investing Chinese capital in South America and especially Ecuador.

Loory: That is also the same situation in Africa, isn’t it?

Mtshali: China is moving into Africa and South Africa in particular. There is an organization called the China-Africa Development Fund plowing a lot of money into the continent. One of the biggest deals that happened last year was between a Chinese bank and one of the biggest South African banks.

Loory: Is this a matter of apprehension for the American economy or policies?

Lardy: China has responded strongly verbally, but they are trying to use the WTO mechanism. They are not imposing unilateral sanctions immediately, not yet. However, this does undermine the position of the U.S. going into the G-20 meeting. At the previous meeting, the U.S. spoke against protectionism.

Loory: What might the G-20 meeting mean for America’s dominance in the international economic picture?

Benzow: The U.S. is still very dominant because of the size of its economy but has lost a lot of money and employment in this crisis. Europe is not unscathed. Germany was the world’s largest exporter until China took that over recently. Germany, like the U.S., has invested heavily in the economy to jump-start it. On the agenda of the major economies at the G-20 will be a discussion of the appropriate time for governments to start pulling out and leaving the rest of it to the private sector.

Loory: There is more talk about replacing the dollar with some other currency. That would be a big problem for countries like Ecuador, which uses the American dollar as its official currency.

Albornoz: Many people don’t know that Ecuador was dollarized in January 2000 after a big financial crisis. This has brought important economic stability. We finally have low inflation rates again. Previously, we didn’t have inflation rates of under 10 percent since the 1970s. The Ecuadoran economy has grown with these good rates. The devaluation of the dollar is making our products cheaper, and we are able to export them for lower prices for the rest of the world. American products are becoming cheaper in the rest of the world, which might help balance the U.S. foreign trade deficit, one of the main reasons for the crisis.

James: From the Chinese perspective, the devaluation of the U.S. dollar is absolutely tragic and will be a big problem in the future because of the massive amount of treasury that China is holding.

Loory: What is the U.S. doing about the devaluation?

Lardy: The dollar has reached a recent low in part because of fears of inflation from the large increases in government lending and the money supply in general. The only thing the government can do now is to reduce the budget deficit once the recovery is strongly established. That involves either raising taxes or cutting government expenditures; neither are popular in Congress, so how much will actually be achieved remains to be seen. China re-pegged their currency to the dollar since July 2008, so when the dollar has been going down, the Chinese currency has been depreciating substantially, which increases the competitiveness of their goods in international markets.

Loory: Is the EU interested in establishing the Euro as the international exchange currency?

Benzow: They would like that somewhere down the line, but I don’t see the Euro or Yuan becoming a currency alongside the dollar in the foreseeable future. The low dollar makes products exported to the U.S. more expensive, which hurts the EU, particularly Germany. Ironically, Germany has reported a jump in exports to China. A cheaper dollar means cheaper energy costs for all of Europe.

Loory: What do the developing nations of the world expect from the G-20 summit next week?

Mtshali: They want the disadvantages they have faced during this current economic crisis raised. They have been very hard hit, whereas the problems started in the big countries and developing countries are mostly exporters to developed economies.

Producers of Global Journalist are Missouri School of Journalism graduate students Jared Gassen, Brian Jarvis, Sananda Sahoo, Melissa Ulbricht and Megan Wiegand. The transcriber is Pat Kelley.

 


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