Tires, Tariffs, Tit-for-Tat: China’s Trade Policies Merit Response

By September 21, 2009Trade

Robert Samuelson, writing in The Washington Post, “Obama’s Tire Tariff: Bad Policy, Right Message“:

Tit-for-tat retaliation could ignite a global trade war. If United States and China do it, why shouldn’t everyone else? Limits on tires, auto parts, chicken — or whatever — might inspire similar measures from other countries to prevent diversion of goods into their markets. Flirting with protectionism is dangerous. Announcing the tariffs shortly before Thursday’s economic summit of G-20 countries in Pittsburgh makes the predictable pious anti-protectionist pronouncements even less believable.

But tolerating China’s predatory trade practices is also dangerous. China’s cheap exports reflect more than low wages. Government actively promotes and subsidizes exports, especially through a deliberately undervalued currency. The undervaluation lowers the prices of Chinese goods. Economist Nicholas Lardy of the Peterson Institute figures the present price advantage at 15 to 20 percent. It might be more. Economist Eswar Prasad of Cornell University argues that cheap credit and subsidized land and energy enhance the price competitiveness of Chinese exports.

It’s a paradox, Samuelson writes: Tariffs as protectionism are bad policy. But in this case, the message they send to China is the right one: Cease and desist.

That’s a thoughtful analysis. Still, until the Administration starts enacting pro-trade policies — to correlate with all the pro-trade speeches — it’s difficult to distinguish between a discrete, tactical message and  nascent protectionism.

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