The Rubber Chicken Trade Wars

The Administration made its decision two weeks ago to put extremely large tariffs on tires from China, an action that the government of the world’s most populous nation will likely take through the WTO appeal process. There have been concerns since then that the Chinese may not be willing to look at the tire decision as sui generis. Indeed, the communist mainline government says that it is investigating complaints about the dumping of US chicken products. American chicken producers, the argument says, are hurting the Chinese chicken producers by undercutting them on price. It may be hard to understand why that should not be part of the normal global competitive environment. The man with the best chicken at the lowest prices does not seem to have the market advantages that he ought to.

The early stage of what is becoming a full-fledged trade war is not about rubber tires or about chickens.

The United States imported $337 billion worth of goods from China last year. It exported $72 billion to the mainland. That is a trade deficit over $260 billion in the favor of China, up from $69 billion in 1999. Some members of Congress and certainly a number of labor leaders believe that the US disadvantage in the figures is unfair and that the Chinese erect barriers to US goods. This is not at all unlike the accusations that America made about the Japanese three decades ago.

The charge that the overall balance of trade is a conspiracy is absurd on the face of it, but that does not mean that the Chinese are above abusing the system.

Large American companies such as Wal-Mart (WMT) could not make any profit at all if they could not source most of their goods from China. That is probably true of many large American retailers. Wal-Mart has begun to take advantage of the rapidly growing consumer base in the China, but its reasons for not capitalizing on the market are unlikely to be related to interference by the Chinese government. Wal-Mart can only build, staff, and create supply chains in the country so quickly.

The Chinese have been known for not honoring their commitments to US companies and for using their byzantine and antiquated justice system to slow any attempt at legal remedies for harm committed against US enterprises. Chinese has an abysmal track record for helping to protect the intellectual property of American software companies and movie studios.  These issues are not a matter of speculation. They are true.

The question of whether the Chinese erect trade barriers is more complex because the details of the abuses are often complex. How China will prove that its chicken industry has been damaged by the American industry will be interesting to watch. Chickens are probably produced inexpensively in China. US farmers cannot match the Chinese cost base for raising and slaughtering poultry. Why American producers would dump chicken products into China is a mystery which may never been entirely solved particularly because it may be a fabrication. Farmers are reticent.

Congressmen are not reticent of they would not be congressmen. That same holds true for the heads of the AFL-CIO and other large unions. Speeches are at the heart of labor and the heart of being elected to the House or Senate. There is hardly a Congressional district in the US where attacking Chinese trade practices would not get out some level of voter support.

The Chinese do not vote for their officials, so their officials must act in their place. Chinese chicken producers may be helped whether they need it or not or whether it benefits them or not. They are small players on stage which is larger than they are.

Politics will be as substantial a part of this trade war as the reality of rubber tire production and chicken processing will be. It is not a fight about one import or another. It is a fight about the future of the largest economy in the world and the fastest growing economy of any big nation. That is likely to make it both lengthy and bitter, especially as joblessness in the US increases and someone has to be blamed for that misfortune.

Douglas A. McIntyre