What Will the U.S. Do About China Auto Part Imports?

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My guess is that the U.S. will do nothing (that’s my default position on trade cases), but I don’t say that with a great deal of certainty. Here’s what is going on:

Midwestern lawmakers and union groups on Tuesday urged President Barack Obama to restrict imports of auto parts from China that they said benefited from massive illegal subsidies and threatened hundreds of thousands of American jobs. (Reuters)

There is no doubt that the U.S. auto parts sector has been absolutely hammered by imports, and particularly those from China. According to the Economic Policy Institute, which produced the study that the complaint has been built around: “the U.S. trade deficit in auto parts increased from $9.5 billion in 2000 to $31.2 billion in 2010.” Significant, yes.

Three things about trade cases like this. First, there has to be political will to go the distance and actually initiate a formal process, such as calling for an investigation or, later, filing a case with WTO. The Obama administration thus far has been quite aggressive on the WTO front when it comes to China, so no reason to think that they wouldn’t sign on for another one.

Then again, if we take the words of this guy who talked to Reuters as any sort of guidance, maybe Obama would like this one to just go away:

A U.S. trade official stopped short of committing to action on the issue, but said the Obama “administration will not stand by when our competitors don’t play by the rules.”

“We will continue to identify and address unfair trade practices to ensure … U.S. workers and companies can compete and succeed on a level playing field,” the official said on condition of anonymity.

Not only is that language chock full of the worst insipid international trade politics blather, but the guy didn’t even feel confident enough in spouting the blather to go on the record with it. Please excuse my inside-the-beltway politically incorrect political jargon, but that guy is a real pussy.

The political decision always comes down to a balancing of constituencies of course. We’ve got unions and the auto parts industry, plus their Congressional reps, on the one hand, and then other industry groups that do business with China on the other. A familiar dynamic.

To complicate matters, the states involved here, including Michigan and others in the Midwest, will play a key role, as usual, in the upcoming presidential election. Perhaps Obama will appoint a “Blue Ribbon” committee to study the issue and push things until after the election?

Second, the complaint against these imports contains a very long list of unlawful trade practices. Its sheer breadth, however, is a bit problematic. If this was a litigation complaint, I’d understand the tactic: you throw everything you can in there and hope something will stick.

In this case, the charges might be way too ambitious. In addition to a number of illegal subsidies, you’ve got currency manipulation, forced technology transfer, deals cut by local authorities, and the list goes on. It’s almost a comprehensive list of all the problems faced by foreign investors in China. A lot of them may even be true, but it would take years to follow up on all of it. Seems like a real danger of this getting bogged down.

Third, even if some of these charges are substantiated via an investigation, the hard part will be gathering sufficient evidence to win over a panel at WTO. For example, everyone knows that several U.S. auto companies have been given approvals for Sino-foreign Joint Ventures conditioned on technology transfer. Knowing that and proving it was an official (or tacit) government policy, however, is a very different thing.

So we’ll see what happens with this complaint. Apologies for the cynicism, but since it is an election year, I’d say that whatever decision is ultimately made will reflect more of a political calculus than the merits of the case.

FYI, if you are interested in this case and want more details than what the major media outlets have, take a look at the briefing paper prepared by the Economic Policy Institute, which has links to other sources at the end. For my purposes, the position paper drafted by D.C. trade law firm Stewart and Stewart was most interesting.

5 responses on “What Will the U.S. Do About China Auto Part Imports?

  1. allroads

    I have not read the full document yet, but one thing I would be interested in is knowing how many of these parts are coming from Chinese firms vs Western firms. Both are going to be classified as a Chinese export, but I have heard of a number of auto firms that are essentially sending parts for assembly to China, only to reimport the assembled piece. Turning low value exports to China into high value imports for the US.


      1. allroads

        Just finished reading the report, and found it to be really more of the same. One of the most amusing portions was where the authors speak of barriers that China has erected to keep US parts out of the market, and then goes on to show how well Japan and Germany have done in building their markets.

        … hmmm… perhaps it is because Germany owns the luxury car market in China, and Japan the middle market? Or perhaps it is because the Buick found local sources through their partner SAIC?

        It’s not that I am not sympathetic to the cause, but I am not sure they authors are doing anyone any favors with this report. It is nothing more than “Buy American” brands (irrespective of whether or not that brand has more “Made in the USA” parts or not) and if they aren’t buying it, its because of a unlevel playing field.