beyondbrics

Tyres, currency, Google and now, chicken redux. Just when relations between China and the US seemed tense enough, China’s ministry of commerce announced last night that it would be slapping a higher tariff on American poultry.

If that induces a flash of déjà vu, that’s because earlier this year – when the US and China were at loggerheads over issues ranging from Google to the Chinese currency – Beijing announced it would levy anti-subsidy duties of up to 31.4 per cent on US chicken imports. The Middle Kingdom has just upped this number to 105.4 per cent.

China watchers would be forgiven for feeling like trade issues with the US appear in to be stuck in a loop.

The original chicken tariff came more than half a year after Washington imposed a 35 per cent tariff on Chinese tyres in the fall of 2009. Sunday night’s move from Beijing comes after a currency-reform bill was passed by US House of Representatives Committee which could allow US companies to petition for higher duties on Chinese imports.

With a US election coming up and US unemployment numbers dismal, the relatively unchanged value of the renminbi, which was de-pegged from the dollar in June, has left American politicians searching for more fuel to stoke the trade fire.

Sander Levin, Democratic Representative and chairman of the committee that ruled on this bill, said in a statement:

Countervailing duties would be available to any US industry that could demonstrate that it has been ‘materially injured’ by imports from the country with the undervalued currency.

Levin cited that businesses and employers were at competitive disadvantages for years because of “China’s [currency]  intervention to keep the price of Chinese goods to the US artificially low and of US produced goods to China artificially high”. He explained the bill would provide “meaningful relief” to these people.

In spite of the measures’ apparent toughness, economist Andy Xie says these tariffs aren’t going to have a major impact if the bill is voted in, and they certainly won’t be negotiated until after the mid-term elections. At the end of the day, it boils down to domestic politics, he wrote:

Let me tell you what I think will happen. Before the mid-term election in November, the House of Representatives may pass a bill that could disrupt the trade. But, the Senate wouldn’t ratify it after the election. The implementable measures will be to block some Chinese exports, mainly products that are still made in the US and are not important to major US companies, mainly commodities like steel, chemicals, and solar panels.

Such measures could be quite painful to some Chinese companies but won’t affect the Sino-US trade overall. Two thirds of China’s exports are directly owned by multinational companies, i.e., branded and distributed by them. The factories in China, even if not owned by them, are like their divisions. The US government is unlikely to disrupt their businesses.

So as this installment of the trade war blazes on, the long-term effectiveness of the measures and counter-measures remains doubtful.

Related reading:
Renminbi: all talk, a little action, beyondbrics
Renminbi: China begins to put its money where its mouth isn’t, beyondbrics