Obama Ignites Trade War With China
And so, a new trade war has begun!
President Barak Obama fired the first salvo by increasing the tariff on Chinese manufactured tires by 35 percent on Saturday.
Today the Chinese government returned fire with the announcement that it was opening investigations into whether the United States is subsidizing and dumping automotive and chicken meat exports to China.
The New York Times ominously pointed out that the Chinese response to previous American decisions to impose quotas and tariffs on a wide range of Chinese garments and steel products over the past four years have drawn denunciations and threats to file W.T.O. cases, but not such a clear threat of bilateral retaliation against American exports.
The ramifications of this conflict at a time of world-wide economic decline may have severe global repercussions.
The Columbia Encyclopedia states that in 1930, the Smoot-Hawley Tariff Act passed by the U.S. Congress brought the U.S. tariff to the highest protective level yet in the history of the United States. By raising the already high average tariff by some 20 percent, it also prompted retaliation from foreign governments, making worse an already beleaguered world economy. Since this occurred after the onset of the Depression, it did not directly cause it, however the net effect was to exacerbate it.
According to amatecom.com, in 1988, the Council of Economic Advisors proclaimed that the Smoot-Hawley Tariff Act was “probably one of the most damaging pieces of legislation ever signed in the United States.”
The danger of trade wars, especially in economic sensitive times, is that, among other things, it may well increase prices and increase price rigidity. In this case, the U.S. cost of tires will considerably increase and exports of chicken meat products and some auto parts will decrease.
The Times reported that the Chinese commerce ministry hinted, in a rather oblique warning, at the harm that a trade war could do at a time when Western nations and Japan are still struggling to emerge from a severe economic downturn. “China is willing to continue efforts with various countries to make sure that the world economy recovers as quickly as possible,” the statement said.
President Obama’s gift to the United Steelworkers Union of the 35 percent tariff on Chinese tires may well ensure their support for his health care reforms.
Most likely, this tariff decision may become known as the shot heard around the world that began a new trade war.
See also: Tarrif On Chinese Tires
