President Barack Obama hit China automobile tire makers with a trade tariff in 2009 and now Beijing has struck back with a potentially more punitive tariff, as much as a 21% tax hike on U.S. car exports bound for China, the world's largest auto market.
This week, the Chinese government upped the ante in the Obama-China trade dispute by surprisingly imposing new tariffs on imports of Honda and Cadillac models, Chrysler Jeep Grand Cherokee, the BMW X5 and X3 and Mercedes Benz models made in Michigan, Alabama and South Carolina. China argues that the U.S. provided illegal subsidies to these companies during the economic downturn in 2008 and is selling those vehicles cheaper in China than they are sold for in the U.S.
The U.S. exports around $92 billion worth of goods to China and cars account for around $4 billion of that. The tariffs, which range from just 2% to as much as 21.5% could impact $2.5 billion worth of American auto exports, according to preliminary estimates by the U.S-China Business Council, a Washington lobby.
China's Commerce Ministry announced the move shortly after the White House said it would ask the World Trade Organization to investigation Chinese restrictions on U.S. poultry exports, of all things. But more importantly, the U.S is also investigating whether Chinese exports of solar panels might have received illegal subsidies or have been dumped in the American market at prices below the cost of manufacturing them. This is a major sore spot for China because it views green tech as one of its core and most innovative developing markets. If the WTO punished China, it would have ramifications across the solar power industry the country does not want to deal with, especially in a slow growth environment. China is the world's leading producer of solar panels, so an attack on them by Washington raises red flags. What better market to go after in the U.S. than autos? The red dragon just blew a hot stream of fire across the Pacific Ocean, right on top of the White House.
US-China Business Council (USCBC) President John Frisbie said in a statement on Thursday that, "USCBC is just beginning to examine the Commerce Ministry’s announcement. We don’t have all the facts yet, but two things are worth noting. First, in 2010 the U.S. exported about $3.5 billion worth of motor vehicles to China and the amount this year is on pace reach nearly $4.5 billion. Motor vehicles impacted by these tariffs are probably in the neighborhood of 3% of all U.S. exports to China. The ability for American companies to export and sell cars to China is important."
China is a member of the WTO, but that doesn't mean member nations cannot take protectionist measures whenever they see fit. This opens up a host of legal battles and due diligence to see whether or not the tariffs are warranted. It's time consuming, and it's political. The Obama administration has not made any decision yet about consulting the WTO on the matter, but the House Ways and Means Committee, which has oversight of U.S. trade deals, is pushing for it.
Ways and Means Committee Chairman Dave Camp (R-MI), Ranking Member Sandy Levin (D-MI), Trade Subcommittee Chairman Kevin Brady (R-TX), and Trade Subcommittee Ranking Member Jim McDermott (D-WA) issued the following joint statement:
Committee Chairman Dave Camp (R-MI), Ranking Member Sandy Levin (D-MI), Trade Subcommittee Chairman Kevin Brady (R-TX), and Trade Subcommittee Ranking Member Jim McDermott (D-WA) said in a joint statement on Wednesday that, “We are extremely concerned by China’s announcement (to) impose new duties on U.S. auto exports. China’s actions are unjustifiable, and unfortunately, this appears to be just one more instance of impermissible Chinese retaliation against the United States and other trading partners. This action appears to violate China’s WTO commitments, and we urge the Administration to exercise all available options to enforce U.S. rights, including, as appropriate, enforcing U.S. rights at the World Trade Organization.”
Both parties within the Committee agree, which is a rarity in Washington these days.
Frisbie suggested that cooler heads prevail. "USCBC stresses that it is even more important to ensure trade remedy investigations are fact-based, follow internationally-accepted rules, be free of politics and not a substitute for retaliatory or protectionist actions,” he said.
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