Why The Latest Trade Complaint Against China Matters

Dave Johnson

The Obama administration has filed a trade complaint against China for violations involving “extensive” government subsidies for autos and auto parts.

From Reuters, at HuffPo: Barack Obama: China Auto Subsidies ‘Directly Harm Working Men And Women’,

“These are subsidies that directly harm working men and women on the assembly lines in Ohio and Michigan and across the Midwest,” Obama told a campaign rally. “We are going to stop it. It is not right, it is against the rules, and we will not let it stand.”

Why This Matters

The auto industry is targeted for takeover by China because it is seen as a(nother) key provider of high-paying jobs, export revenue and therefore national economic strength. The Seattle Times explains, in WHY IT MATTERS: China’s auto parts industry.

The United States, China and other governments see the auto industry as an important source of higher-paid jobs and export revenue. The 2008 global crisis fueled complaints in the West that Chinese policies on a wide range of industries might be wiping out jobs abroad.

Chinese automakers exported only about 500,000 autos last year, mostly to the Middle East, Southeast Asia and other developing markets. But its producers of tires, aluminum wheels, radios and other components are making inroads in U.S., European and Japanese markets. They have yet to break into the top ranks of suppliers along with companies such as Delphi, Visteon or Europe’s Michelin and Bosch. At the lower end of the market, Chinese suppliers are increasing their global share, putting pressure on smaller Western competitors.

China’s strategies, from the same article,

Beijing has an array of strategies to support industries targeted for development, ranging from clean energy to mobile phones to autos. Companies can receive tax breaks and low-cost bank loans, energy and land.

The WTO allows research grants and some other aid, but critics say China violates rules that prohibit making exports a condition of support. They say Chinese policies have encouraged auto parts manufacturers to shift production to China, hurting employment abroad.

The key:

Employment in the U.S. auto parts sector shrank by roughly half between 2001 and 2010, while U.S. imports of auto parts from China have increased seven-fold, according to the Obama administration.

400,000 Jobs Lost, 1.6 Million More At Risk

In January three separate reports were released showing how China’s illegal subsidies and other trade violations were causing job loss and damaging our supply chains. The Alliance for American Manufacturing (AAM) described the reports in New Reports Show China’s Illegal Trading Practices Endanger U.S. Auto Supply Chain,

More than 400,000 jobs in the U.S. auto supply chain have been lost since 2000. One major problem is China’s persistent violations of World Trade Organization (WTO) rules, and another 1.6 million U.S. jobs are at risk unless China’s illegal trading practices are curtailed, according to three separate reports released in January of 2012.

Taken together, these three reports show beyond a shadow of a doubt that China’s blatant use of illegal government subsidies and a web of predatory trade practices on a massive scale are undercutting companies in the U.S. auto supply chain.

The three reports from January:

  • Growing Threats to the U.S. Auto-Parts Industry from Heavily Subsidized Chinese Tires and Parts, conducted by Robert E. Scott and Hilary Wething of the Economic Policy Institute (EPI), notes that a substantial portion of jobs in the U.S. auto industry are in the auto-parts sector, with direct and indirect auto parts jobs in virtually every state. The report concludes that “every one of these [1.6 million U.S.] auto-parts jobs is individually at-risk from this unfair trade competition.” Research by AAM has found that the auto parts sector comprises 75% of employment in the U.S. auto industry.
  • Putting the Pedal to the Metal: Subsidies to China’s Auto-Parts Industry from 2001 to 2011, conducted for EPI by Usha C.V. Haley, cites $27.5 billion in government subsidies to the Chinese auto-parts industry and notes that China’s central government has committed to disbursing an additional $10.9 billion in subsidies for industrial restructuring and technological development of the industry.
  • China’s Support Program for Automobiles and Auto Parts Under the 12th Five Year Plan, by Stewart and Stewart, a prominent law firm that has won cases challenging China’s unfair trading practices, offers evidence that the massive government subsidies being given to Chinese producers, which are in violation of China’s WTO commitments, will continue for years to come unless challenged by Congress and the President.

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