Late in the evening of September 11, 2009, President Obama announced a 35 percent tariffs on tires imported from China. For the first time the United States invoked the “Specific Safeguard” provision, which was agreed to by China as a condition for her WTO entry. This is one of the nastiest features of China’s WTO agreement, which was designed specifically to protect the United States and other members from competition against certain imports from China. Under this safeguard provision, the United States can restrain any Chinese imports that it deems disruptive to her market. This kind of provision is excessively abusive and arbitrary, seldom witnessed in the annals of international trade. It is an outrageous demand imposed on any trading partner, and it is equally absurd that any country would accept this as a condition for trade.1.
President Obama took advantage of the “Specific Safeguard” provision and unilaterally imposed tariffs on imported Chinese tires. The president’s decision is regarded as a major victory for the United Steel Workers, the union who supported him in his presidential campaign. The union complained loudly that China was responsible for job losses as four tire factories were closed during 2006 to 2007. The American tire industry—the domestic producers, exporters and importers, on the other hand, strongly opposed the tariffs on Chinese tires. They argued that this would not save American jobs, as tire manufacturers merely move their facilities to other locations where they can obtain source of cheap labor.1.
Indeed, the policy of outsourcing for cheap labor has been the hallmark of the U.S. industry’s overseas investments, as according to the China’s Commerce Ministry spokesman: “two-third of Chinese tire exports to the US are manufactured by four American companies operating in China.”2. China tire exports consist of low-end market, where U.S. companies have given up on manufacturing at home long ago. Moreover, China’s tire exports to the U.S. have experienced a mere 2.7 percent increase over the previous year in 2008, and a significant decline for the second quarter in 2009.2.
In America, the tire industry is dominated by four firms, namely Goodyear, Michelin, Cooper and Bridgestone, which controll 90 percent of the business. The outsourcing of low margined tires to China was the deliberate decision of the American firms, as the low cost in China enables them to achieve a higher profit and support the operations at home. Thus, by taking action against China, President Obama and his union supporters are in fact against the U.S. firms. According to Daniel Ikenson of Cato Institute: “Although the lightning rod is China (with all of the negative perceptions that have been cultivated about its trade practices), this case has little to do with China per se, and everything to do with organized labor begrudging U.S. producers for pursuing profit-maximizing strategies in a globalized world.”3. In reality, this is an indictment of globalization on the part of U.S. union members.
After all, it is globalization that leads U.S. and China to be embroiled in this dispute. China embraced globalization by launching the strategy using export as a driver for national economic development in early 1980s. China embarked on urban industrialization by fully integrating into global capitalist economy. This leads to neglecting rural development, resulting in stagnant rural income, and a further polarization between the countryside and the cities. The stagnation of rural income at first was largely brought about by the rising costs of agricultural inputs such as fertilizers, and the falling prices of agricultural products together with tax increases.4.
However, Chinese farmers suffered another blow with the dissolution of collective farming, as they lost all the benefits such as free public education, health care, together with abandoning of investments in agricultural infrastructures. Furthermore, in the process of urbanization, “40 million peasants have been forced off their land to make way for roads, airports, dams, factories, and other public and private investments, with an additional two million to be displaced each year.”4. Other reports show the problems are much worse, with as many as 315 million people who lost their lands by 2004.4.
China’s commitment to slash agricultural tariffs as a condition for China’s WTO entry delivered another decided blow to the Chinese farmers. “The cost of admission for China is proving to be huge and disproportionate. The government slashed the average agricultural tariff from 54 to 15.3%, compared with the world average of 62%, prompting the commerce minister to boast (or complain): ‘Not a single member in the WTO history has made such a huge cut [in tariffs] in such a short period of time.’”4.
As a result, American subsidized agricultural products such as soybeans and cotton have flooded the Chinese market. This has devastated the Chinese farming sector, as millions of the Chinese farmers are facing stiff competition, losing market shares, income and even the incentive to farming. By 2004, “after years of being a net food exporter, China registered a deficit in its agricultural trade. Cotton imports skyrocketed from 11, 3000 tons in 2001 to 1.98 million tons in 2004, a 175-fold increase. Chinese sugarcane, soybean, and most of all, cotton farmers were in ruin. In 2005, according to Oxfam Hong Kong, imports of cheap U.S. cotton resulted in a loss of $208 million in income for Chinese peasants, along with 720,000 jobs.”4. China indeed paid a high price by sacrificing the interests of hundreds of millions of Chinese farmers in exchange for her WTO entry. The WTO entry leads China to become the factory of the world, with the privilege of exporting industrial goods to America. Unfortunately, the majority of these industrial goods such as low-end tires, are manufactured for or by the giant U.S. multinational corporations who merely pay a pittance for the Chinese workers, while mercilessly damaging China’s environment.
It is puzzling, then, why President Obama, knowingly that the imports of Chinese tires was in the interests of the U.S. multinational corporations and that the imposition of an excessive tariffs on Chinese tires would not create any additional jobs for the American workers, still took the unprecedented action of using the “Specific Safeguard” provisions to raise tariffs, thus provoking China. Some allude that this is due to Obama’s close relations with the American unions. Others point out this is the President’s strategy of reindustrialization of America, which he enunciated with special reference to China at his presidential campaign when he said: “These have been a disastrous eight years for our manufacturers. We’ve lost nearly 4 million good-paying jobs…. Now I believe in trade, but I also believe that for America to compete and win in the global economy, trade has to work for all Americans. That means making sure that our workers are competing on a level playing field, and that countries like China aren’t breaking the rules and putting American workers at a disavantage.”5. How is China breaking the rules, candidate Obama said: “It’s not just that China is following the path taken by so many other countries before, and dumping goods into our market while not opening their own markets, something I’ve spoken out against. It’s not just that they’re violating intellectual property rights. They’re also grossly undervaluing their currency, and giving their goods yet another unfair advantage.”6.
Since he entered office, Obama has kept a low profile in expressing his sentiment with respect to the protectionist ‘Buy American” provision in the stimulus package. The bail-out of auto industry as devised by his administration is inconsistent with the WTO rules. The complaint of China’s “currency manipulation” has been repeated by Obama’s Treasury secretary, Timothy Geithner, in the latter’s confirmation hearing.
However, in raising tariffs by an extraordinary amount on Chinese tires, the United States “have blatantly violated its commitment to the G-20 earlier this year to avoid new invocations of protectionism.”3. The president’s action makes a mockery of free trade, which has been promoted by the successive U.S. administrations to countries like China under the aegis of neoliberalism. The consequences of his action would be enormous, as globally, it encourages other nations to follow America’s example of reckless intervention and deliberately violating rules governing trade. At home, other interest groups may follow and seize the “China-Specific Safeguard” provisions to pursue their own agendas against China. This could ignite a protectionism backlash not only between the United States and China, but also around the world.
Indeed, protectionism has raised its ugly head in America. Protectionist voices have been increasingly strident in U.S. Congress and academic circles, as China critics like economist Peter Morici at the University of Maryland has advocated for a getting tough strategy with China. He stated that the American economy “cannot grow if they continue to permit the Chinese to victimize us on trade.”7. Economist Sue Helper at Case Western University believed outsourcing manufacturing jobs to China would lead to the loss of key technologies. G.E. CEO Jeffrey Immelt, despite the fact that his company has reaped an enormous amount of profit by being a pioneer of outsourcing and in invading the Chinese market, is calling for the reindustrialization of America.7.
Protectionism in America and elsewhere is ominous for China, especially the country is now trade dependent after having sacrificed the interests of hundreds of millions of the Chinese farmers, who constitute the majority of the Chinese people. Unfortunately, the Chinese policy makers still do not recognize that trade under the WTO rules is doing tremendous harm to the Chinese economic development. This was apparent with China’s response to Obama’s provocation, when it merely declared that China would impose tariffs on U.S. auto parts and chicken meats, and demanded talk with the United States on the tire tariffs.
Clearly China still has no intention of abandoning WTO with its nasty provisions against China. The WTO agreement for China entry is the most unfair, unequal trade treaty in the annals of international trade. Yet China still wants to be a party to it and is busy in searching for an accommodation with the United States to maintain the economic order of globalization based on neoliberalism.
Unfortunately for China, as a result of the misguided policy of “export-oriented industrialization”4., her rural development has been stagnant and hundreds of millions of farmers impoverished. Polarization and social instability have been increasingly evident in the Chinese society. China’s environment has been damaged without repair, and her resources depleted. Foreign takeovers of Chinese industries and the meager wages accumulated by hundreds of millions of Chinese working in the “sweat shops” have resulted in the holding of excessive dollars. Dollar devaluation has put China’s dollar holding at huge financial risks. Clearly, this is not in the national interests of China, and it contradicts with the old belief that nations always act for their self-interests.
Indeed, this is a perplexing international phenomenon, as nations are not acting in their best interests. Professor Michael Hudson calls this a Stockholm syndrome, where the victims in the hostage taking tend to identify with the hostage takers. However, in China, one has to look at the powerful influence of the special interests groups who benefit from foreign trade and urban real estate development. Therefore, unless Chinese policy makers have the wisdom and courage to resist this undue influence and undertake a fundamental change in their strategy by turning their attention to domestic development, China will be on the way to ruin, and there will be no hope for a prosperous China.
Notes:
1. Andrews, Emund L.: “U.S. Adds Tariffs on Chinese Tires”, September 11, 2009 New York Times
2. China Daily: “Major trade test ahead for Obama with China tire ban”, September 8, 2009
3. Ikenson, Daniel: “Burning Rubber: Proposed Duties on Chinese Tires Whiff of Senseless Protectionism”, Cato Institute
4. Bello Walden: “Will China Save the World from Depression?”, May 19, 2009 Foreign Policy in Focus
5. Realclearpolitics.com: “Obama’s Remarks on Manufacturing in Michigan”, May 14, 2008
6. Council on Foreign Relations: “Speech by Barack Obama”, April 14, 2008
7. Conniff, Richard: “One year later: The Vanishing American Consumer”, September 14, 2009 CBCNews. |
