No doubt about it, China doesn’t play fair on trade

Trade issues are not everyone’s idea of a good time. With so many demands on their attention, ordinary Americans are wary of the truth quotient in commentary on the subject. They are cautious about separating the genuine from the meretricious comments from corporate America, which is concerned about maximizing shareholder wealth rather than doing the right thing for the majority of Americans.

General Motors has warned that President Trump’s threats to impose a 25 percent tariffs on imports of cars and car parts are projected to cost the auto industry billions of dollars, could raise some car prices by nearly $6,000 and result in fewer American jobs and a smaller GM. In contrast, a Ford Motor Company spokesperson said they believe they are somewhat insulated from the proposed tariffs because their most profitable vehicles are built here.

Currently, vehicles imported to the United States face a 2.5 percent tariff. Cars built in America face a 10 percent tariff when they are shipped to the European Union and a 25 percent tariff when they head to China.

During the financial crisis, the feds put $49.5 billion of taxpayer money into the GM bailout and the taxpayers ultimately lost an estimated at $10.5 billion. The firm has remained profitable since then. In retrospect, the bailout should have included provisions requiring that a portion of future profits go to fully repay taxpayers. Government Motors could also have been required to build automobiles and auto parts in the USA.

The automaker sold 4.04 million vehicles in China in 2017, a third more than the 3.02 million it sold in the United States. Last year represented the sixth consecutive year that China was General Motors’ largest market.

GM and other multinational companies headquartered in America view China’s emerging middle class as the world’s largest market for their products. The firm’s future growth relies as much on China as it does on how the automaker responds to emerging disruptive technologies such as electric and autonomous vehicles, and changing patterns of car ownership and use that will ultimately force the modification of its current business model.

Multinationals are concerned that the tariffs will cause the Chinese government to retaliate by imposing bureaucratic rules and regulations that could cause them to lose market share. China used this approach to roll back Japanese automakers’ market share during a dispute with Japan over contested islands in the East China Sea.

When China was violating the World Trade Organization rules on subsides for wind turbines, General Electric and other firms that were in the business were reluctant to bring a dispute to the WTO for fear of Chinese retaliation. It was the United Steel Workers who ultimately brought it to the WTO.

It is hard for multinational corporations to resist the temptation to placate the Chinese. China doesn’t have to send lobbyists to walk the halls of Congress, they just have the multinationals do what they want.

It is implausible to argue that China does not engaged in unfair trade practices. China is a one-party communist dictatorship. It is not bound by the political constraints of a democratic government with a constitution that imposes presidential term limits and secures the rights of free speech and association.

This political structure enables China to promote state subsidized industries such as steel, aluminum, and solar panels that have flooded global markets, depressed prices, and shut down hundreds of manufacturing plants, all in violation of World Trade Organization rules. Along with currency manipulation and stealing intellectual property, China’s actions amount to a thumb on the scale.

“Free” trade is a concept that works in classrooms insulated from the harsh realities of unfair practices and policies. They ignore predatory practices by foreign governments who view trade as a competition between nations and play dirty to grab a competitive advantage for their industries.

Like that of multinational corporations, China’s position on trade will be based on maximizing their own interest

Originally Published: July 14, 2018

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