Sunday, September 13, 2009

Trade war coming?

I'm sure that there are about 18 different layers of international trade negotiations that I am unaware of, but the bold move by the US to fire the first shot in a possible trade war with China seems odd and ill-timed.

"The U.S. would impose remedies under Section 421 of the 1974 Trade Act to stop a harmful surge of imports into the U.S. of Chinese tires for passenger cars and light trucks. Following what the ITC determined was a surge, production of similar products in the U.S. dropped, domestic tire plants closed, and Americans lost their jobs.

The agency posted the following penalties: The three-year remedies, consisting of an additional tariff of 35 percent ad valorem in the first year, 30 percent ad valorem in the second, and 25 percent ad valorem in the third year, are being imposed."

"China’s share of the U.S. tire market surged 255% in that time, to 16.7% from 4.7%."

I think it's pretty clear that China's tires serve the low-end of the US auto tire replacement curve. China argues that the US tire manufacturers have long ago abandoned this segment of the market and I think their argument is pretty sound.

Late on Sunday, China said they were going to look at US imports - autos and chickens - and possible dumping by US companies in the Chinese market. I don't expect this to get too heated but it's something to watch.

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The growing US poverty problem

"The nation’s poverty rate climbed to 13.2%, up from 12.5% in 2007. That is almost certainly a sign the economy has decimated the earning power of millions of Americans. The number of people living in poverty is likely to be closer to 14% next year because unemployment is so high now.

The problem of lower wages has affected more than the poor as the median family income fell to $50,300 in 2008 from $52,200 in 2007."

I have a number of big picture concerns facing the US, but I think the stresses on our social safety nets - unemployment, social security, etc - as job losses grow, Federal tax receipts fall, state tax revenues fall, etc, has to be near the top of my list.

Cheers!

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