American Automakers Win WTO Complaints-Are Tariffs a Wise Chinese Policy?

The economy is a hot topic in today’s society as the American economy starts to show signs of sputtering to life. Recently, American automakers won a significant WTO case concerning Chinese tariffs on American-made cars and sport utility vehicles. According to the complaint, tariffs ranged from 2% to 21.5% on large cars starting in 2011 that impacted nearly two-thirds of $8.5 billion worth of U.S. Auto Exports (1, 2).  American manufacturers and officials lodged the complaint as an unfair practice within the global economy and sought a level trading field.

It is believed that the duties were implemented by China in retaliation for an American 2009 enactment of an anti-dumping duty of up to 35% on imported tires (3). The WTO also backed the U.S. anti-dumping program due to the unfair practice related to pushing cheap Chinese products on the market. Lower than cost products are viewed as an attempt to game the free market and damage American manufacturing capacity.

In the ruling the WTO global trade arbiter found that China’s duties on American made vehicles violated international laws and is in line with other WTO decisions involving steel and chicken broiler parts (4). Tariffs often restrict free trade and countries that effectively negotiate treaties with each other expect relatively transparent trading approaches. 

American automakers are likely toasting to the ruling as an official endorsement of their complaints. The automotive industry will have an easier time improving upon their sales and marketing in the Chinese region of influence. Combining this legal market adjustment with an improving U.S. manufacturing costs there are new opportunities rising (5). 

Countries often engage in tariffs to strengthen domestic markets. Despite this seeming advantage there are long-term risks to the Chinese economy. A paper by Azam Chaudhry highlights some of the tradeoffs that countries face when they use tariffs (2011). Raising tariffs allow for greater rental income and political stability while reducing tariffs increases long-term growth and potential instability. 

Tariffs support emerging economies but damage those same countries when they mature and need advanced knowledge. China is an emerging economy that is maturing and they seek to suck in innovation, knowledge, and production capacity when possible. However, as American markets become more equated in costs those same tariffs lower the desire to invest and share knowledge which has a direct impact on innovative growth. 

The tariffs that were supposed to help China are now contributing to political and financial instability. China is concerned about growing corruption within their society and is trying to curb the loss of intellectual and financial capital to shore up economic waste. According to Rotunno & Vezina (2012), the use of tariffs increases corruption as companies and officials skirt government restrictions in search of greater financial gain. We experienced much of the same thing during the Prohibition Periods. This process of business and government officials bulking national laws for personal interest has increased thereby furthering the strength of the shadow market (6). 

China’s economy isn’t as stable as was once thought. They have reaped the reward of cheaper labor but as the economy globalizes some of these benefits become limited. What once protecting their new industries may have a detrimental flip side of the coin. Multi-national companies are seeking greater mobility, flexibility, and fairness in the transference of goods, services, and information and are not able to get that in difficult import markets.

This ruling not only creates greater opportunities for American businesses to sell in China but also develop their own internal capabilities through better policy, information management, and investment guidance. As Multi-national companies search out innovative enhancements they will naturally seek business friendly and information rich clusters. Semi-closed economies may do better if they open up and reach out to international investment opportunities and improve their financial positions beyond protectionist policies. American clusters combined with progressive trade policies may just further tip the manufacturing balance in favor of the next American transformation.

Chaudhry, A. (2011). Tariffs, trade and economic growth in a model with institutional quality. Lahore School of Economics, 16 (2). 

Rotunno, L. & Vezina, P. (2012). Chinese networks and tariff evasion. World Economy, 35 (12).

Branding Clusters and Cities

Economic development is an important part of keeping the nation moving forward on its economic and social goals. The way in which clusters and cities are branded is important for helping its citizens understand their place within it all while helping people of other places formalize a concept of the area. A paper by Brian Crombie discusses the benefits of branding cities and clusters for greater growth (2011).

Clusters are branded in much the same way as products and services. Branding can apply to any mass communication that include companies, political parties and nations to create success on the market (O’Shaughnessy & O’Shaughnessy, 2000). Branding is a process of creating greater awareness of the offerings of an area. Such brands should do the following (Crombie, 2011):

-Target opportunities in high growth sectors such as life sciences, sustainable technology, life sciences, financial resources or advanced technology.

-Create a supportive business environment.

-Provide a brand that attracts business, investments and jobs.

A strong brand is, “distinctive by its positioning relative to the competition, and by its personality, which comprises a unique combination of functional attributes and symbolic values” (Kavarvztiz, 2004, p. 65). It provides an extra nudge to ensure people are aware of its businesses, cluster, and opportunities.

Brands should give a name and image to the social system and social capital within the area (O’Shaughnessy & O’Shaughnessy, 2000). People should be able to formalize what an area stands for and what it can provide on different planes such as core competencies, its people, and its lifestyle. When done well it creates a total image of the area that can be useful for helping people believe in that brand.

Each cluster and city has an image. Some images are well known while others are not known at all. Each brand should accurately reflect the area but also push to enhance those aspects that are most beneficial for growth. When people can formalize the image of an area and have adequate information to understand that area they are more likely to invest, grow businesses, and train people around that image.

Crombie, B. (2011). Branding cities and clusters for economic development. ISM Journal of International Business, 1 (3). 

Kavaratzis, M. (2004), From City Marketing to City Branding: Towards a Theoretical Framework for

Developing City Brands. Journal of Place Branding, 1

O’Shaughnessy, J. & O’Shaughnessy, N. (2000). Treating the nation as a brand: some neglected issue. Journal of Macromarketing, 20 (56).