Are we still denying there is a trade war going on?

Posted by Ray on December 30, 2009 under Main | Be the First to Comment

There have been several actions taken by both China and the US this year against each other both claiming dumping charges. The irony is that all the accusations are probably true given the fact that China does subsidize its industries rather substantially which allows them to bury overpriced US products. However, China’s accusations about US dumping of auto parts and cars is also true given that GM and Chrysler is also heavily subsidized by the US government as well, that is now undeniable and an embarrassment to all US citizens.

I realize that the US won the ITC, International Trade Commission, ruling today, but do you really believe that ruling was impartial? Considering the US provides a large portion of the funding for such organizations it would be doubtful that we would lose any case brought before them. I would compare this to the arbitration clause in your credit card application which was so blatantly slanted to the creditor that Congress basically was going to strip it of its powers before the industry ‘voluntarily’ got rid of that clause from its agreements. It stands to reason that when one party basically funds an organization to arbitrate disagreements between that party and third parties there is no objectivity, at all.

Regardless, how many actions is this now between the US and China? It started with tires, moved on to chicken, cars, seamless pipes and now steel grates. All of this while the US is trying to force China to strengthen its currency, which China would be nuts to do I might add. All of these actions smell of protectionism which will not be good for the average American in 2010. While the Fed wants to create inflation I think Obama misunderstood what type of inflation they were talking about, wage inflation not just price inflation. At this rate, and for the first time ever, the US consumer could be facing the same or lower wages with rising prices because this administration is picking fights with our largest supplier of goods.

The irony is that the media actually says that foreign nations actually love us now because of Obama. That may be true in Europe, but I could care less about Europe because the last time I checked we did not get the vast majority of our cheap everyday goods from Europe, we get them from China. Frankly, we are ticking China off by demanding that they do things they do not want to do and we are in no position to demand anything at this stage of the game. Especially since China is almost, if not already, the number 2 economy in the world with the largest population in the world. Did I mention they also hold a lot of US dollars as well?

Telling China, not asking them, to strengthen their currency is also protectionism whether you want to believe it or not. By asking them to make their currency stronger you are telling them to raise their prices on their goods which, in turn, makes products at Walmart more expensive. The goal, of course, is fruitless, but Obama figures that if Chinese goods are more expensive then you and I will opt to by a US made good instead. This is not a new idea and has been tried many times before, it never works, and it may trigger some pretty bad things to happen, but hey who cares about history and facts when we have perpetual bailouts going.

I have no idea how China will react to this politically, I am not a politician, here is what I do know. If we buy less Chinese goods that means our trade deficit legitimately gets smaller, a good thing right? Wrong. With some $5T in treasury debt to roll and issue this year we need countries like China to run trade surpluses so they are forced to buy our paper. If they are not running those trade surpluses then they will not have to buy our paper, they could if they wanted to, but they would not have to. That is the biggest reason in the world to not play games with them right now since our ‘recovery’ is shaky at best. If they do not buy our debt that means QE will continue and then we are in really big trouble because technically monetization of a countries debt is the final straw before it defaults, that is a historical fact not an opinion.

I am not sure if the current administration understands that or not, but somehow I doubt it. I believe they think that this forced ‘buy American products’ policy will work, but protectionism was what really kicked started the Depression, combined with bank failures, which we already have a ton of I might add. Maybe this is some type of payback to organized labor or something, who knows, but I see other troubling signs of protectionism as well. Japan is doing a cash for clunkers program that American car makers do not qualify for.

Now, US lawmakers made the rules and most c4c sales went to Japanese car makers and why not they make one heck of a car and the companies are solvent. The Japanese program is slanted towards only Japanese automakers, again, why not they make great cars and the companies are solvent, but now some representatives are upset about this. What are they going to do about it, I do not know, but they could do something dumb like put a tariff on Japanese cars or something, which I hear is being discussed, that is protectionism.

Protectionism and trade wars are bad, bad, news for everyone, but especially for the US consumer. Our government knows not what they do and they continue to do ridiculous things which make life increasingly more difficult for the everyday American, but let the people who messed up the economy off the hook, completely. If they do more to increase this blossoming trade war or initiate more protectionism legislation you have to act and tell them to stop. I want America to succeed, but on its own merits, not through legislation that punishes free trade.