China's Anti-Dumping Tariff Hike Against US Cars Augurs Trouble
China this week celebrated a decade since it joined the World Trade Organization (WTO). At the time, It enjoyed American backing in its bid to join the organization.
The prevailing assumptions then were that Chinese membership would exert a salutary influence on China's political development and that it would guarantee China's adherence to the rules of free trade.
To judge by the latest events, these expectations have been disappointed.
China has just imposed a tariff on the import of American vehicles with engine capacities above 2.5 L. The decision will affect GM, Chrysler and American-made Hondas. China claims that this is a lawful measure needed to contend with American dumping of vehicles (even though the sticker price in China is higher than the cost for the same vehicle in the United States)
The Chinese contention is based on the massive US government intervention to bail out GM and Chrysler in 2008-09.
The American suspicion is that the Chinese action is in retaliation for American tariff hikes on Chinese tires. Although the WTO upheld the American action, the Chinese are not accepting the decision.
Another theory is that the Chinese are firing a shot across the bow because they expect the United States to impose duties on Chinese solar panels exported to the United States. The Americans are currently investigating charges that Chinese renewable energy exports received subsidies or are dumped at a loss so as to crowd American companies out of the market.
This plays out against the backdrop of the Solyndra Affair where a solar energy company backed by the Obama administration went bankrupt.
The Chinese measure will not have a major impact on the US car industry. American manufacturers produce cars in China and affluent Chinese will not be deterred by the increased duties from purchasing a "must have" vehicle.
However, both the administration and congress are railing against the Chinese decision. The administration referred to Chinese methods as problematic while Michigan congressmen, who represent the hub of the American automobile industry, took aim at China.
U.S. Sen. Carl Levin, D-Michigan claimed that China's actions "have nothing to do with economics or law and everything to do with its continued desire to circumvent international trade law." Chinese officials also were criticized in a joint statement by U.S. House Ways and Means Committee Chairman Dave Camp, a Midland, Michigan Republican, and the committee's ranking Democrat, Rep. Sander Levin (the older brother of Carl Levin) of Royal Oak, Michigan.
As both countries battle against recession and job losses, there will probably be more, rather than less, of these recriminations.