Obama Launches Trade Dispute over Chinese Auto Part Subsidies

Back in January, the Alliance for American Manufacturing released a report showing that as China has provided billions in subsidies for auto parts manufacturing, US jobs in that segment have been declining. In March, a bunch of (mostly Democratic) members of Congress wrote a letter demanding the Administration do something about China’s unfair trade.

Today, Trade Representative Ron Kirk announced the Administration would ask the WTO to intervene.

United States Trade Representative Ron Kirk announced today that the United States has requested dispute settlement consultations with the Government of China at the World Trade Organization (WTO) concerning China’s auto and auto parts “export base” subsidy program. Under the program, China provides extensive subsidies to auto and auto parts producers located in designated regions, known as “export bases,” that meet export performance requirements. China’s program appears to provide export subsidies that are prohibited under WTO rules because they severely distort trade. The subsidies provide an unfair advantage to auto and auto parts manufacturers located in China, which are in competition with producers located in the United States and other countries. Based on publicly available documents, “export bases” made at least $1 billion in subsidies available to auto and auto-parts exporters in China during the years 2009 through 2011.

It’s one of a series of trade actions the Administration has taken (and just in time for election season!).

I worry, though, that this particular complaint is too little too late (though George Bush bears most of the blame). Even if parts manufacturers started leaving China because of this (a lot will remain because China often closes its own markets to parts unless you manufacture domestically), I suspect they’d come back to Mexico, not the US.

All that said, as Obama’s WTO disputes get more and more general, it may well bring people to realize what a myth this whole free trade thing has been all these years, that American workers are losing their jobs because other countries make sure they create jobs.

Update: Former Bush econ flack Tony Fratto points to something else that may come out of this.

The owner of 500 million shares of $GM is accusing China of subsidizing its auto industry.

In past disputes, China has threatened to look at ways we subsidize our manufacturing industry. This one may well cause them to do that (though with Chinese investment, for example, in subsidy recipient A123, they might prefer to profit of our subsidies).

4 replies
  1. Eric Hodgdon says:

    Trading objects is one thing. Selling and buying with currency is a different concept. Trade agreements won’t work because countries will protect their interests because they know one will gain while the other will lose by using currency.

    And yes, just in time for the election. Cynicism or truth?

  2. BSbafflesbrains says:

    There is really very little Nationalism in the World economy. China has an almost inexhaustible supply of cheap labor as does most of the third world. Corporate America is not looking out for U.S. business interests but for maximizing profits from FYE to FYE. The new trend I see is once you have exploited the worker as much as possible you go after your customer with tricks and flim flam and outright cheatiing like B of A. We need a return to the trust buster era of TR and maybe some Nationalistic protectionism IMO.

  3. Arbusto says:

    As a corollary, and to me, a new economic excuse for status quo for trade with China, Brazil or India for that matter, is a devalued Dollar will make manufactured US goods cheaper in said countries. At the same time, as wages rise in said countries, establishing a larger middle class, the workers will find US goods better made and cheaper than their own. This will increase production in the US and employ more workers. Neat huh! Reminds me of NYT columnists in 2007 saying how great all the Wall St new derivatives were.

  4. jerryy says:

    I wonder how far things wil go before someone decides to calm things down (or if this WTO complaint is the Obama administration’s way of trying to use that ‘ol nuanced misdirection to calm things down). The dispute between Japan, China (and Taiwan, who seems to be left out in many reports) is getting more serious with Canon and Panasonic shutting down many of their factories in China because of violent protests (which could impact prices of a wide variety of electronics).

    The disoputed islands are in oil rich and fish rich waters that are also convenienly in major shipping lane areas. We, the US, also happen to have one of those go-to-war-inorder-to-defend type of treaties with Japan against any attacks by Taiwan or China or anyone else. Of course doing so will wreck havoc with everyone’s economies and countries, not to mention that China and the US have a lot of nukes.

    Those Mayan zombies must be doing their light yoga stretches about now, warming up for the upcoming apocalypse.

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