Trading threats

PUBLISHED : Tuesday, 24 November, 2009, 12:00am
UPDATED : Tuesday, 24 November, 2009, 12:00am

Beijing and Washington are again at loggerheads over trade, this time over steel pipes. The United States this month imposed antidumping duties of up to 99.14 per cent on mainland-made steel pipes, with the mainland denouncing the duties as 'abuse of protectionism' and 'discriminatory behaviour'.

In September, the Barack Obama administration decided to impose a 35 per cent tariff on Chinese tyres. Beijing responded with claims of 'grave protectionism', and tit-for-tat investigations of subsidies for US car parts and chicken meat are reminders that the relationship between the sickly superpower economy and the young pretender is fraught with danger.

The worry is not merely that the US and the mainland are locking horns over the relatively small issues of steel pipes, tyres and chickens, but that the underlying problems remain unsolved, including the mainland's mercantilist approach and the US pandering to its own powerful political interests. For years the mainland and the US enjoyed a deep economic relationship: the mainland met American consumers' whims, with everything from electronics to toys unimaginably clever and cheap. America paid the mainland immense amounts of dollars, thus allowing Beijing to build up its international muscle, with foreign exchange reserves now more than US$2.2 trillion. With the economic crash, Beijing faced the truth of the axiom variously attributed to John Maynard Keynes and John Paul Getty, that if you owe your bank $100, you are in trouble, but if you owe your bank $1 million, the bank is in trouble. Americans learned they could not go on spending beyond their means.

The mainland's tyre production last year was three times greater than domestic shipments. Sales to the US soared to 46 million, 16.7 per cent of the US tyre market, up from 4.7 per cent four years before. More than 5,000 jobs were lost in the US, and seven tyre plants are doomed. But Chinese tyres compete in the budget or no-brand market abandoned by US manufacturers.

The Obama administration acted under a hitherto unused clause of the mainland's accession to the World Trade Organisation, allowing it to act unilaterally. It was a sop to US labour, not a wish to slap the mainland in the face. Beijing's aggrieved reaction and threats of retaliation show that the mainland has not got the message.

The fear is that steel pipes and tyres may just be the tip of a treacherous iceberg. The mainland has already lost a WTO ruling on its restrictions on media distribution, lost an appeal on duties on auto parts and is facing US and European Union complaints about export restrictions on raw materials. An embattled Obama is facing fresh calls from other powerful political interests to stand up to Beijing.