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Obama's China fight

July 9, 2012

US President Barack Obama has brought a case to the WTO about China's increased tariffs on US auto imports. Yet analysts suggest it is about more than merely trade as such.

Obama speaking at campaign event
Image: Reuters

Incumbent President Barack Obama is battling it out with Republican presidential candidate Mitt Romney over Ohio, a swing state. Traveling on a bus through Ohio on the campaign trail, Obama is emphasizing a fight against Chinese protectionism and for US jobs. Ohio happens to be a state that hosts a large part of the US automobile industry.

A few states over in Washington, D.C., White House Speaker Jay Carney announced that the Obama administration has brought a complaint against the Chinese government to the World Trade Organization. As Obama disparaged the Chinese tariff as "unfair," US Trade Representative Ron Kirk called upon the government in Beijing to "play by the rules to which it agreed when it joined the WTO."

Chinahas raised its import duty on US cars by as much as 21.5 percent, this for 2.5-liter engines. According to Washington, US carmakers exported 92,000 cars to China last year - which amounts to $3 billion in revenue. Chrysler and General Motors are especially suffering under the Chinese tariffs, Carney claims.

Presidential election dictates timing

For Jacob Kirkegaard of the Peterson Institute for International Economics in Washington, the timing of this attack against Chinese protectionism is anything but coincidental. "The presidential election dictates the timing," Kirkegaard told DW. Obama is trying to establish himself as an advocate of the US auto industry, Kirkegaard thinks. With the current headlines he's producing, he wants to "show how much he's championing American industry," Kirkegaard said.

Jacob Funk Kirkegaard
Tit for tat, Kirkegaard saidImage: PIIE

Doris Fischer, an economist and professor for China Economics and Business at the University of Würzburg in Germany, thinks this will be seen similarly in Beijing. China "has already complained about the US turning it into an election topic," she said. The accusations continue to be the same: China isn't sticking to the rules, China is trying to harm the US economy.

State help

In hiking up its duties, China insists that the US automobile industry is being illegally subsidized, which is making US cars too cheap. In recent years, the US government has provided funding for domestic auto producers to avoid bankruptcy. Since then, Chrysler and GM are back in the black. China sees a direct connection - and this constitutes a distortion of trade relations, it claims.

Kirkegaard agrees that "support for Chrysler or GM in 2009 was very clearly state help." But that's not the real reason for raising the tariff, he thinks. Kirkegaard assumes that China was seeking revenge for other cases when the US refused to allow cheap Chinese imports. For example, "in 2009, when China wanted to sell tires at dumping prices on the American market."

Chinese factory workers assemble Ford cars on the production line
All large auto manufacturers maintain production in ChinaImage: picture alliance/dpa

Fischer said the accusations from the US keep coming, "that the Chinese are practicing dumping and that they want to sell goods cheaply in America." But now, the Chinese are standing up to this, saying: "If you look closely, the Americans are doing the same," Fischer said.

Beijing and Washington have been fighting for years over cheap exports, protectionist tariffs or compensatory charges. The cycle of retaliation is never-ending. Kirkegaard described is an attitude of "as you do to me, I will do to you."

Manufacturing pain

And now, as champion of the US automobile industry and domestic jobs, Obama has taken his case to the WTO. But are jobs really in danger if 92,000 cars get increased import duties? Fischer doesn't think so. She indicated to DW that GM sold 2.5 million vehicles to China last year, but only "several tens of thousands of those were imported."

Doris Fischer
Idle threats, Fischer saidImage: DIE

That's because GM produces its vehicles for the Chinese market in Shanghai, where they are not subject to import tariffs. So any "pain inflicted upon the biggest manufacturers is limited," she said.

"It's not something that's going to endanger the general health of any big auto manufacturer," Kirkegaard concurs.

Saber rattling

Any complaint lodged with the WTO follows the same procedure: Both parties have 60 days time to solve the problem in negotiations. If this brings no results, after a period of consultation, the WTO's trade tribunal becomes active. Such a process can last up to two years.

But Fischer doesn't think it will come to this. She sees the US complaint as "a bit of saber-rattling." Kirkegaard also believes that a fight between Beijing and Washington will be quietly resolved - by November at the latest, when the US presidential elections take place.

Kirkegaard thinks the US has good arguments for calling foul play upon China. But it's not likely to pursue the case: "There's too much at stake for them both to truly endanger their trade relationship."

Author: Dirk Kaufmann / sad
Editor: Andreas Illmer