By: Mike Campbell
There is a curious balance in the global market place between cheap imports, on the one hand, which drive consumer spending and generate profits for the middlemen and loss of domestic jobs from the competing sector on the other. Whilst we all like to have high quality cheap products, we don’t want it to be at the expense of the destruction of thousands of jobs at home.
The US Government has been facing just such a dilemma over the importation of Chinese manufactured tires into the domestic American market. In 2004, the US imported 5% of its tires from China; by last year, the level had more than tripled to 17%; some 46 000 000 tires. Naturally, this worried US unions, fearing for their members jobs. Under union pressure, the US slapped a 35% import duty on Chinese tires, amidst claims that the Chinese were “dumping” tires into the US market. The move was said to be needed “to remedy a market disruption caused by a surge in tire imports".
Obviously, the Chinese were not happy about this development and have referred the matter to the World Trade Organization (WTO). The move will trigger a 60 day negotiation period between the two nations aimed at finding a settlement. If that fails, China can request a WTO panel to make a ruling. The Chinese have been quick to stress that they do not see the episode as the opening salvo in a trade war and have denied that the affair will hurt Sino-American relations. Shares in American tire firms were up on the news of the American move whilst there Chinese counterparts saw a fall. The affair seems to have had no impact on the US$/Chinese Yuan rate which has been essentially stable over the last quarter.