Tuesday, September 15, 2009

The Next Trade War Has Already Started   [Veronique de Rugy]

Here is an excellent Review&Outlook piece in the Wall Street Journal this morning. It gives a good overview of the trade war that's taking place right now and is likely to explode in the near future.

The smell of trade war is suddenly in the air. Mr. Obama slapped a 35% tariff on Chinese tires Friday night, and China responded on the weekend by threatening to retaliate against U.S. chickens and auto parts. That followed French President Nicolas Sarkozy's demand on Thursday that Europe impose a carbon tariff on imports from countries that don't follow its cap-and-trade diktats. "We need to impose a carbon tax at [Europe's] border. I will lead that battle," he said.

Mr. Sarkozy was following U.S. Energy Secretary Steven Chu, who has endorsed a carbon tax on imports, and the U.S. House of Representatives, which passed a carbon tariff as part of its cap-and-tax bill. This in turn followed the "Buy American" provisions of the stimulus, which has incensed much of Canada; Congress's bill to ban Mexican trucks from U.S. roads in direct violation of Nafta, prompting Mexico to retaliate against U.S. farm and kitchen goods; and the must-make-cars-in-America provisions of the auto bailouts. Meanwhile, U.S. trade pacts with Colombia, Panama and South Korea languish in Congress.

The Journal also gives an interesting account of the 80-year relatively free-trade era and the forces that might be putting and end to it.

Paul Krugman, the chief economist for House Democrats, has endorsed a carbon tariff. And Clyde Prestowitz, who insisted in the 1980s that Japanese mercantilism would rule the world, went so far as to argue in the Financial Times last week that imposing tariffs on China would strike a blow for free trade. As economic logic, this compares to the argument that the way to reduce government health-care spending is to pass a new trillion-dollar entitlement.

President Bush and his trade negotiator Robert Zoellick also claimed that the protectionism of their 2001 steel tariffs would lead to more free-trade support, but the move merely exposed U.S. hypocrisy and undermined global trade talks. The reality is that without the U.S. leading by example, the world trading order is likely to deteriorate into every country for itself. This is especially dangerous amid a global recession in which world merchandise trade volume fell by roughly 33% from the second quarter of 2008 to June 2009. Reviving trade flows is crucial to restoring global growth.

The whole thing here. And here is a good Yahoo News recap of the president's move to slap tariffs on Chinese tires.

09/15 10:19 AMShare