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Trading Punches

September 17, 2009

If headlines are to be believed, the Obama administration's decision to impose tariffs on imports of Chinese tires was the opening salvo in a full-blown U.S.-China trade war. Beijing has threatened to take retaliatory action against shipments of U.S. vehicles and poultry. And there are rumblings on both sides of the Pacific about bringing the controversy to dispute settlement at the World Trade Organization.

Having failed to convince the White House not to impose tire sanctions, free-trade ideologues now forecast protectionism spiraling out of control. And supporting that fear is a study released this week by Global Trade Alert and the Centre for Economic Policy Research in London, which finds new forms of protectionism on the rise.

But the evidence of impending doom is far more nuanced than headline writers suggest. The Global Trade Alert report shows that hyperventilation about the tire decision, with its implication that Washington is leading the protectionist charge, is overblown. It is the Europeans who have imposed the most discriminatory measures in the last 10 months. And it is the Chinese whose new protectionist actions have affected the most countries.


Nevertheless, tit-for-tat retaliation is self-defeating and a prescription for economic suicide. It is dangerous and should be resisted. But the risk of rising protectionism lies more in Beijing and Brussels than Washington.

Obama's tire decision was based on commitments China made when it joined the WTO. At that time, Beijing agreed to allow surge protection against imports from China. Now, nearly a decade later, when this provision is used for the first time, China threatens retaliation. In so doing, it is Beijing, not Washington, that risks being in violation of its trade commitments. And for the Obama administration to back down in the face of those threats would merely enable China's sense that rules do not apply to the Middle Kingdom, a dangerous precedent.

But the flap over tires between two of the world's largest trading nations is symptomatic of the growing number of trade actions being taken all over the world.

Since November, when major countries pledged to take no new protectionist measures, a G-20 member has broken its pledge every three days on average, according to the Global Trade Alert report. In that period, the world economy has been hit by 190 beggar-thy-neighbor trade actions. Insidiously, only 25 of these have been traditional trade-restrictive measures, such as anti-dumping, anti-subsidy and safeguard actions.

Nations increasingly have turned to import licensing, industry bailouts and tariff increases. More ominously, Global Trade Alert has found 134 trade-restrictive measures in the pipeline.

"I think we are in for a scary six to 12 months," said Simon Evenett, founder of Global Trade Alert. "The stuff I see in the pipeline is really quite worrying. A number of countries are revising their trade policies. South Africa is changing its government procurement code. Japan is reviewing its sanitation law. Russia has a new trade strategy. I am not at all sanguine."

The Global Trade Alert data also demonstrate that the U.S.-China tire spat focuses the spotlight on the wrong actors. Beijing and Washington are relatively minor sinners in a world of trade apostates. In the last 10 months, China has taken just eight clearly protectionist actions and the United States only seven. Nations of the European Union have implemented 61 protectionist measures. And, among individual nations, Russia ranks first with 19 trade-restricting actions, followed by Germany with 15 and India and Indonesia with 10.

Judged by a different metric, in the number of trading partners harmed by discriminatory measures, China ranks first, with trade-restricting actions affecting 164 other nations. The United States ranks fifth, hitting 120 countries. Overall, Indonesia ranks in the top five among offending nations, with India a close second.

The Global Trade Alert data also suggest why Beijing has reacted so defensively to the U.S. tire action. China is, by far, the largest single target of trade-restricting measures, with 100 actions -- tariff increases, anti-dumping actions and so forth -- taken by other nations that discriminate against Chinese interests.

Notably, the United States is the second most frequent target of discriminatory actions, with 86, underscoring the U.S. stake in curtailing protectionism.

Conservatives and business interests will cite these figures as two more reasons why the White House should not have acted in the tire case. Ganging up on the Chinese will only heighten their paranoia. And new trade actions by Washington will be used to rationalize similar measures by others.

Clearly, the United States has no interest in throwing gasoline on protectionist embers. But the Global Trade Alert data suggest the greatest danger to the global trading system comes not from U.S. actions, but from European, Indonesian, Indian and Chinese measures.

Headline writers and pundits should take note, lest their lamentations about the tire decision fuel partisanship rather than defend principle, and serve only to fuel anti-Americanism abroad.

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