Friday, December 30, 2011

Does a Trade War with China Loom?

China was already showing strong signs of economic growth
when we visited there in 1999. Its people are brilliant and

Many of the current Republican candidates oppose American membership in the World Trade Organization. Just think about that!
by Charlie Leck

Is it possible that a trade war with China is on the horizon? Probably not, but it appears that China keeps pushing the envelope.

Everyone was quite hopeful when China joined the World Trade Organization (WTO) ten years ago and pledged to abide by the standards and rules that governed its members.

Now, very recently, China has imposed a tariff on American automobiles with large sized engines that enter China. Diplomatic negotiations between the two nations about this issue have intensified. China has challenged the U.S. to take the matter to the WTO for a ruling. The Chinese argument is that the American automobile industry produces government subsidized products. (Hard to argue against such reasoning when one considers the American bailout of the auto industry!) The tariff comes as a response to the U.S. doing the same thing to China in regard to its subsidization of the solar panel industry.

China is flooding America with products of significant quality (forget about the imbecilic little toys and doo-dadds that also get into the country) that are produced by Chinese industries that receive government subsidization. This enables them to produce, for instance, industrial and architectural steel at a fraction of the price that it can be produced in America. America seems to be fighting this trade war with one hand tied behind its back. We are trying to build a wind-turbine industry at the same time that China pursues one. What chance would we have to compete against meager Chinese labor costs and heavy governmental subsidization of the industry?

Republican presidential candidates keep decrying the great advantages the Chinese have over American labor. These candidates blame it on the current American president. How valid is that? Or, perhaps the question should be: How stupid is that?

The problem is one that is going to be solved only at the global level – though an organization like the WTO. Most of the Republican candidates ridicule organizations like the WTO and call for us to withdraw our membership from it. The alternative, then, in a disagreement like this, becomes an all-out trade war in which America may not be the favorite to win.

Just think about that as you consider whether a massive trade war with China would be beneficial to the U.S.. And, as you think about it, remember how much of our current debt is held by China – both private Chinese investors and the Chinese national government.

Keep these questions and thoughts in your mind as you think about what you’ll do in the coming election.

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