China & US: A Trade War Made Of Steel Pipes

The trade disputes between China and the US seem more frequent. The passions on both sides seem more violent and permanent with each new argument over imports and exports.

The International Trade Commission handed the Americans a victory over China by ruling the manufacturers from the world’s most populus nation have dumped steel pipes into the US at below market prices.

The US government is likely to put 16% tariffs on China-made steel pipe products and China is likely to find a way to retaliate. China sought a duty on chicken parts from American farms when it was hit with tariffs on tires two months ago.

Optimists who look at these scuffles over chickens, tires, and steel pipe argue that the trade tension between China and the US is very limited. This misses the point that American is in a fight for its economic life as goods made on the mainland in factories staffed by people who are just off the farm are a powerful weapon in China’s effort to improve the power of its mighty export machine. The People’s Republic has foreign currency reserves of over $2 trillion. It can afford to subsidize money-losing manufacturing operations if that helps the country to better compete for products made in the factories of the other large industrialized nations of the West.

The US economic disadvantage to China gets worse each year. The Chinese government does very little to protect intellectual property rights of companies that produce premium media content and software. This sucks sales and profits out of those industries, most of which are based in the US. Concurrently, China offers irresistable prices for wholesale goods to large American retailers like Wal-Mart (NYSE:WMT) which means US suppliers are often pushed to the side.

A push to get below-market priced products into Western economies is a clever and intelligent strategy, even if it means getting caught and punished from time to time.

Douglas A. McIntyre