China swirls in whirlpool of protectionism
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Obama starts the "war"
US President Barack Obama's administration apparently hasn't withstood the test on trade policy.
"You can be fairly sure that when a government slips out an announcement at nine o'clock on a Friday night, it is not proud of what it is doing," commented Economist magazine on September 17, referring to Obama's tire decision.
Obama's trade policy is "a pastiche of pro-trade rhetoric, violations of international agreements and protectionist bobbing and weaving," Los Angles Times reported on September 24.
According to the 16th provision of the Protocol on the Accession of the People's Republic of China to the Marrakesh Agreement Establishing the World Trade Organization, China gave other countries the right until 2013 to impose temporary "safeguards" against surges of Chinese imports.
"The safeguard mechanism can take effect only when the increasing import of tires was the direct cause of the sharp decrease of domestic tire production, the closing of facto-ries, and increasing unemployment," He Weiwen said. "But the US could not prove this."
US domestic manufacturers have largely abandoned the low-end tire market. The tariffs, which drop from 35 percent in the first year to 25 percent in the third, will mostly divert supply to Mexico, India, Indonesia and Brazil, said Tom Prusa, a Rutgers economist who has carried out work for tire companies.
"It won't create more job vacancies for US citizens either," Wu Hongmei, a professor at the College of Economics and Management at Beijing Forestry University, told the Global Times.
Deutsche Bank Research economist Syetarn Hansakul said China has no choice but to act tough.
Obama's decision appears to be motivated by the desire to appease the United Steelworkers union, his strong constituency from whom he is seeking support for his healthcare-reform plan.
"The tire safeguard case encouraged protectionism in the US, which led to a broad blockade of Chinese products. And other countries are following suit, fearing the trade diversion," said He Weiwen, managing director of the China Society for WTO Studies.
According to a Global Trade Alert report released in late September, conservatively estimated, 121 beggarthy-neighbor measures have been implemented by G20 governments since November.
However, David Dollar, the US Treasury Economic Emissary to China, was optimistic about the trade environment, and he didn't consider it a sign of a trade war.
"All the G20 countries are following the WTO rules," Dollar said Saturday at Tsinghua University China and the World Economic Forum, adding that the activities of the US did not exceed the WTO framework."
"Many trade frictions are going on within the WTO framework," said Zhang Yuyan, director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences (CASS). "Any member has the right to appeal at the WTO if it feels the trade sanctions inappropriate."
China's Achilles' heel
China's export growth was expected to be 18-19 percent next year, according to CASS, Zhang said Saturday at Tsinghua University.
"China is winning a larger piece of a shrinking pie," said a New York Times report Tuesday. "In the first seven months of 2008, just under 15 percent of American imports came from China. Over the same period this year, 19 percent did."
"As it becomes a trade power, China should adjust its policies, given its changed position in global trade," He Maochun said.
"China needs to find a balance between export and import, between external demands and internal demands," He said, adding that China should lower its foreign trade dependence and slow its soaring trade expansion. "The competitiveness of products should be the focus."
As the recovery of external consumption takes time, China should encourage the driving force of domestic demand and consumption, said Tarhan Feyzioglu, resident representa-tive of the International Monetary Fund in Beijing, calling for RMB appreciation.
"Chinese enterprises should use the WTO rules to protect themselves," Zhang said, referring to a steel case in the Bush administration. Former US president George W. Bush declared on March 5, 2002, that tariffs imposed on steel imports to the US were ranging from 8 to 30 percent, aiding the Unite State steel industry.
"The tariffs apparently broke the WTO rules, and the US finally lost the lawsuit," Zhang said. "But the tariffs were used as a cushion to offset the flood of imports, helping the US steel industry gain the precious time to improve."
Chinese business associations should fight for their enterprises, helping small enterprises by setting up an information-release system for industries, for example, He said, calling for a change of the current business association.
"Still, there is no need to be afraid of the frictions," He said, adding that the trade frictions indicate that China is achieving more contact with the world.
"Challenges, if dealt with well, will turn into opportunities," Zhang added.
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