China: Unhappy with U.S. Trade Policies, Launches Retaliatory Investigation

China has sent yet another public signal that it is unhappy with the U.S. and its trade policy by prepping an investigation into alleged illegal auto subsidies by the U.S. government. The timing of this announcement puts a spotlight on the bailout of GMAC, the auto financial company, which effectively has nationalized the firm. This may be by intention.

The Financial Times reports:

China is preparing to launch a trade investigation into whether US carmakers are being unfairly subsidised by the US government, according to people familiar with the matter.

The move comes at a time of heightened trade tensions between the two countries after the US imposed duties on Chinese tyres last month. Many warned this would prompt Beijing to retaliate.

Few vehicles are actually exported from the US to China, but the move would have symbolic power by turning the tables on Washington.

Yes, General Motors has a large presence in China and its bailout by the government has an impact on its ability to operate competitively in China. But, because the U.S. does not export many cars to China, one might see this as a strange action on China’s part. In my view, China is telling us with this action that “what is good for the goose is good for the gander.”

I find this story a bit curious because China already said in September that it would investigate autos and chicken in retaliation for U.S. tariffs on tires. But, we should look at this in a wider context. The US is also angling to get Chinese to revalue the renminbi. The Chinese are resistant to this and their actions here can also be seen as a warning to the U.S. that any and all protectionist threats will be met with retaliation.

Elliot Feldman, head of international trade at Baker & Hostetler, the law firm, said his firm warned the USTR last January that the approach the US was taking towards China and other countries over subsidies was dangerous in the light of the US’s own support for carmakers, banks and financial institutions.

“We warned that other countries could apply to the United States the same principles the United States was applying to them,” he said. “Apparently we have arrived.”

The problem with protectionism is not that it can protect sectors, but that it leads to retaliation and escalation. This is now what is beginning to occur.

Comments

[James Lewis:]

Lets be clear, Amercias support of its industry via subsidies, industrial policies, social policies (such as keeping liviing conditions poor by setting wages too low) is 1/1000 of what China does. In effect the entire system in China is subisidised and mico/macro controlled.

China is trying to exhibit that it will not be pushed to do anything so it can further delay its stance on its policies and put itself in an even better position. America so far has been weak in every respect and even though I really have a bias towards the US their policies in so far has been so poor, stupid and weak. That if China does in fact carry on achieving its aims and goals I will not be in the slightest but unhappy. Becuase the USA does not deserve to be at the top of the food chain due to its inferior behaviour.

If I was the USA I would smile and start pulling out all my technology and high capital investments out of China. Re-structure the countries supply chain. Then escalate the amount of disputes through the WTO. China can never win at the WTO because they so un-compliant on every level.

I personally think the WTO is a complete waste of time, after all the largest exporter in the world does not respect, adhere or even take any of the WTO policies/idealogies into account.

When is the USA going to grow some bulls and do something about it.

***MAYBE THE COMMERCIAL MORTGAGE CRASH WILL PROMPT THEM INTO DOING SOMETHING***

Nov 01 06:13 AM

[huangthomas:]

This is paranoid and hallucination during economic hard time. Go out and find a job!

Nov 01 12:08 PM

[William M. ...:]

Edward your right, "Yes, General Motors has a large presence in China and its bailout by the government has an impact on its ability to operate competitively in China. But, because the U.S. does not export many cars to China, one might see this as a strange action on China’s part"

GM (China) is creating jobs for China not American workers. Let China build factories in America and create jobs for American's like Japan has done, then they've earned the right to complain! How many factories in the USA has China built with all that money we give them?

I admire what China has accomplished. But for those old enough to remember China in the pre-Nixon years -(50's to 60's) where was China before it had America as it's number one job creator and market dumping ground?

We've been brainwashed into thinking America needs China. The truth is China needed America to create its jobs and buy its products and raise its standard-of-living. If not for America -Beijing streets would still be filled with bicycles not cars.

I'm with James Lewis. Who needs China? The average American family had a better standard of living before we gave our factor (and the attached professional) jobs to china. Before we had the big 8 CPA firms...now the left over 4. We had more Engineering jobs. True, our CEO's made 1/4 as much before outsourcing but I'm just talking about American's new peasant class which use to be its middle class. I could go on but out of respect and admiration for China's talented youth I will not.

What about the fear China will not want to loan us money or dump dollars? I say great! It's about time interest rates double and the banks start paying me the rates I earned before China.

What about the debt we owe China? Well, let me put on my old Vietnam uniform and get my father in his Korean war uniform and we'll be in the streets chanting default on our loans and declare them null and void, like so many third world countries we've loaned money did to us....or who nationalized our corporations assets in their country. Has China ever repaid America for helping to kick Japan out of their country in WWII? Did we even get a Christmas card?

Just joking China, forgive my rant. I love you. May I mange your worthless American Capitalist Dollars?
XoXoXo

Nov 01 05:47 PM

[User 422955:]

The PRC and the US are locked in an embrace. Each would like to get out, but only on their own terms. The events analyzed above are only shadow boxing. I think that Edward Harrison is correct, if he's asking: 'The question is not: "Who is going to win?" The question is: "Who is going to land the first blow?".'

Nov 01 07:41 PM