Asia Scope

Trade war?

China has responded quickly to the US decision Friday to impose higher tariffs on imports of Chinese-made tyres, saying it has already filed a complaint with the World Trade Organization. News of the filing initially sent markets lower Monday, and China has also reportedly launched probes into the supposed dumping of US autos and chicken products.

Opinion is split over whether this will provoke a trade war –  J. Bradford DeLong describes it in the Wall Street Journal as just ‘really stupid’ while a commentary piece in the National Business Review sees it as a further move toward US protectionism:

“…the Obama administration has been trying to have it both ways on the trade issue – paying lip service to free-trade rhetoric in multilateral economic forums like the G-20, while adopting policies on specific trade-related matters that are generally more consistent with a protectionist agenda.”

Either way, the timing is bad – Obama is hosting Hu Jintao and other G20 leaders in Pittsburgh next week. And Charles Freeman, a former assistant US trade representative for China affairs, is almost certainly right to warn in an FT commentary piece about the bigger dangers, arguing the US decision could be a boon to nationalist interests in China:

“…this particular White House decision…is no mere slap on the wrist for run-of-the-mill Chinese perfidies. This decision provides fodder for nationalist interests in China that will not just push for tit-for-tat retaliation against US economic interests, but play into a broader trend within China to roll back market-opening reforms.”

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And all this a week after the dollar’s status as a reserve currency was called directly into question by a UN trade and development report and the US reported its trade deficit had widened the most in a decade, to $32 billion. As if Obama didn’t have enough on his plate already…