Obama imposes tarriffs on Chinese tires

[lomiller]

I think you have failed to grasp the extent to which China manipulates currency. Most modern economies choose not to directly control currency exchange rates, China does.

In addition China does engage in dumping. While this term is often abused to mean any trade that hurts domestic industry, that isn’t what it means. (Else all international trade would qualify)

Dumping is the practice of amortizing fixed costs on domestic sales, often to a market protected from imports, and selling to export markets based on marginal costs.

For example, let’s say you have 2 countries each with a demand for 1000 widgets and each with their own industry. Let’s also say that the industries have the same cost structure, to show why dumping is a problem. Since cost structure is the same you shouldn’t expect either to have a competitive advantage.

Let’s also say that to be in the widget business costs $1million, and that each widget costs $1000 to produce. (in truth the more you produced the lower that number would likely be) In supplying their own market, therefore each country would be producing widgets for $2000 a piece and selling tome for a little more, say $2200 to make a profit.

Now lets bring international trade into the picture. One country could start selling widgets for $1200 each in the other countries market. While this is below their actual cost of production it’s above their marginal cost and therefore they stand to make a profit.

This is dumping and it will effectively destroy the industry in the country the widgets are being dumped into even though they are competitive on a part for part basis. This practice is extremely destructive and unfair to the industry and economy of the target country so it’s not allowed in international trade. Identifying when it’s occurring is problematic, but the guild line is that if a product is being sold at lower prices in export markets then domestic it’s illegal.

In China’s case government control over imports and heavy government intervention to devalue the currency makes for ideal conditions for dumping. The country being targeted can’t sell back into the other market to compete for market share. On a purchasing power basis the Yuan can buy 2 times as much in China as it can on the international market due to the Chinese Government pushing down its value. This disparity in domestic purchasing power parity means that on paper you are selling at the same price to both markets, the value of your domestic sales are much higher.

 

[NoZed Avenger]

In addition China does engage in dumping. While this term is often abused to mean any trade that hurts domestic industry, that isn’t what it means. (Else all international trade would qualify)

Either the Administration failed to put their points across or the media has failed in reporting the reasoning (or has cynically jumped to the conclusion that the effort is politics-driven and omitted the mention of any official reason).

At the moment, I am assuming the press has fallen down on the job, but it would be nice if someone worked to put this kind of information into the news stories, themselves.

The connection between the anti-dumping change (and, given it is still a largely state-controlled economy, a lot of that likely goes on) and tires specifically would be nice, but at least this puts the decision into an understandable light. It may still be a bad move in the long run, according to the reactions it provokes, but the reasoning at least makes sense.

While it's been a few years since I had to look at them, the U.S. Anti-dumping laws were not meant to deal with command economies, however, and that may be why they have not been invoked -- the definitions used do not work well when markets are not picking prices, and may make use of those particular laws unworkable for this situation.

 

[GreyICE]

It occurs to me that despite our years of Cold War, we never developed regulations that deal with the possibility of a command economy that actually functions.

Granted, with the defunct USSR, that was like developing regulations that deal with the possibility of elves destabilizing the gold market, but with China, we might actually have to.

 

[Puppycow]

China would be hurt more than the US by a trade war.
Trade in Goods (Imports, Exports and Trade Balance) with China

In 2008: TOTAL (USD millions) Exports 69,732.8 Imports 337,772.6 Balance -268,039.8

China's GDP at current exchange rates was $4.4 trillion in 2008 so exports to the US accounted for about 7.7% of GDP. US GDP was $14.26 trillion in 2008 so exports to China accounted for about 0.5% of GDP.
China has more to lose. So they have more careful about retaliating. They don't want it to escalate beyond just tires.

(One could argue, I suppose, that the US actually has as much to lose, if you consider access to cheap goods as important as jobs, but politically jobs tend to be more popular than cheap products.)