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).
