From the time that President Nixon signed away a large portion of America’s financial future to China, the economic relationship between the two superpowers has become increasingly imbalanced. The Obama administration is the latest to enjoy the fruits of Nixon’s labor, and as The Detroit News reports, it is attempting to claw its way back to respectability by complaining that Beijing is unfairly imposing a tariff on over $3 billion in U.S. auto exports headed for China.
China balancing the scales
Under the rules of the World Trade Organization (WTO), a country like China is permitted to impose punitive tariffs to recoup losses from subsidies and below-market sales. However, the U.S. government is contending that China is imposing tariff in excess of what is reasonable.
In June, the U.S. was able to successfully challenge China on excessive tariffs on American steel and chicken products. According to White House spokesman Jay Carney, China has assessed huge duties against over all foreign auto exports, but 80 percent of this has fallen inordinately upon General Motors and Chrysler. Carney and many others believe this is a direct result of certain actions taken by the Obama administration during the recession.
Nations like China, complaining that U.S. government bailouts of its own automotive industry amounts to “unfair subsidy,” come after exports with higher tariffs to make things more even, economically speaking. Tariffs assessed by China affect U.S. exports for two years and range between 2 percent and 21.5 percent. Cars and SUVs with engine capacity of 2.5 liters and more are subject to the tariff.
A consultation with the WTO has been requested by the U.S., which is the first step in raising a trade dispute. If the U.S. and China are unable to solve the tariff issue within 60 days, the U.S. can then ask for a WTO dispute panel. Rulings in such scenarios typically require a two-year wait.
Trade issues strain U.S.-China relations
In March 2012, the U.S., European Union and Japan brought a trade case before the WTO over China’s curtailment of rare earth mineral exports, for which the nation holds a monopoly. These minerals are used in the production of hybrid vehicle batteries, as well as a host of other non-automotive, high-tech goods. While China claims that heavy regulation of rare earth exports stems from environmental concerns, the rest of the world believes China is after gross profits.
China trade relations have also provided a political soapbox. Republican presidential candidate Mitt Romney has accused President Obama of being “too soft” on China, while the Obama campaign has shaken a finger at Romney’s outsourcing of jobs to China during his days at the head of a private equity firm.