Because What This Economy Needs Is a Bullet In the Head, We Bring You Trade War With China


Having exhausted efforts to create broad-front inflation, the Obama Administration is now targeting strategic items for direct cost increases. The first thing you'll be paying more for: tires.

Oh, wait, that's the second thing you'll be paying more for. The first was the used car the tires go on. So it all works out. Unless you're poor.

This weekend's Friday night mumble includes a new tariff on circular rim-mounted pressurized mobility-shock-traction devices made in the land of China. Because extruding rubber is the kind of high-tech, high-skill green job we're trying to save and create, the United States has placed a 35 percent tariff on Chinese-made tires. Benefitting from this new protection will be the United Steelworkers union. The Washington Post has more:

"The president sent the message that we expect others to live by the rules, just as we do," Leo W. Gerard, president of the union, said Friday night.

China's government and its tire manufacturers, as well as tire importers and some U.S. tire makers with plants overseas, had strenuously objected to the measure.

"The President decided to remedy the clear disruption to the U.S. tire industry based on the facts and the law in this case," the White House said in a statement released Friday night.

The tire case has been in the works for a while, and there are other things in the pipeline—including, well, pipeline. Noting that we've already got the Canadians mad at us, Mish Shedlock a few days ago warned against the coming tariff on Chinese-made steel pipe:

One of the biggest risks now to the global economy is a huge round of protectionism. Unfortunately, it's probably only a matter of time before Congress overreacts. That's human nature, Congressional style.

Pray tell, how is charging 21.3% more for steel pipe going to encourage investment? The answer is: it will not. Not a single job will be saved by this ridiculous measure. Instead, China is likely to react by buying more planes from Europe, or wheat from Australia, instead of either from the US. Alternatively, trade just shrinks across the board in other ways.

Earlier this week Nouriel Roubini's RGE Monitor sent an email roundup on the state of international resource protectionism:

Last week's announcement of new rules governing deep-sea oil deposits off the Brazilian coast has reignited debate over resource nationalism. Deposits in the pre-salt layer deep beneath Brazil's seabed are one of the more promising, if expensive, sources of new supply available globally. President Lula unveiled the new rules on what he called an "Independence Day for Brazil." Among other things, they suggest that Petrobras, the publicly traded but state-run oil company, have a majority stake in any new developments of the deep-sea oil…

However, Brazil seems unlikely to mimic some of its Latin American counterparts several of whom have long treated national oil companies as a fiscal cash cow. Mexico's government relies on Pemex for the bulk of its revenue, but production at Mexico's lead oil field, Cantarell, has been falling since the mid-2000s, and restrictions on foreign investment have left Mexico behind in exploration of Gulf of Mexico waters…

Venezuela, the site of a series of nationalizations ranging from banks, to cement, to oil, actually showed signs of a truce with international oil companies after having forced foreign oil companies to take smaller stakes in the Orinoco Valley. However, most of Venezuela's partnerships have been with other state-owned oil companies.

Russia has made changes to its fiscal regime in an effort to lure more investment and exploration in hard to access regions. Russian oil production has been stagnant so far in 2009 after falling in 2008…

Even the United States and Canada have been tweaking their fiscal regimes concerning oil production. In 2008, the Canadian province of Alberta brought in new regulations recalibrating oil sands royalties depending on the oil price…. The United States, for its part, is tweaking its fiscal regime concerning oil producers, as higher taxes on resource extraction are one of the ways that the government hopes to limit the future fiscal deterioration…

Resource control is not limited to oil and energy. Last week, China, the producer of over 90% of the world's rare metals, suggested it might restrict exports of these key inputs for batteries and other new technology. Not only did it suggest reducing export volumes, but its companies have suggested strategic alliances to develop supplies in other countries. Although Chinese officials have backtracked from the proposed cuts, export polices are still a risk.

That's a mixed bag. But while it's difficult to create a chain reaction in nature, it's easy to do it in tariffworld. Just impose a tariff on another party and, as Chinese Ministry of Commerce spokesman Yao Jian indicated immediately after yesterday's announcement, that party will retaliate.

If you're registered in the Facebooks (which I'm going to start calling "Facebook/Livre du Visage" as an olive branch to our good friends and trading partners in the Great White North), you may want to join the group "Freedom to Trade: Say No to Protectionism." The pitch:

Trade restrictions will prolong and deepen the global recession. Yet, seventeen of the G20 countries have recently initiated such measures—in spite of promises to the contrary. India has banned Chinese toys; China has banned imports of Irish pork; the EU has announced new export subsidies for butter, cheese and milk powder; and the US is requiring companies receiving bailout money to "Buy America". In Britain, jingoists and unions call for "British jobs for British workers".

This Free Trade Petition is an initiative of IPN (www.policynetwork.net) and the Atlas Economic Research Foundation (www.atlasnetwork.org).