Chinese President less Protectionist than Obama?

Posted by: Frederik Balfour on September 22, 2009

Chinese President Hu Jintao can afford to take the moral high ground on protectionism when he sits down with President Barack Obama on the sidelines of the U.N. General Assembly in New York today. Instead of responding with a tit-for-tat action immediately to Obama’s decision last week to slap 35% tariffs on imported Chinese-made tires, Beijing merely launched an “investigation” of possible trade violations over chickens and auto parts with the W.T.O. While some media predicted things could escalate into a full blown trade war, I noted in this is an unlikely prospect.

Others have speculated that Obama was only throwing a bone to protectionist law makers in Washington in order to gain some traction to push through his wishes on more pressing issues such as global warming and climate change, a major item on the agenda of the G-20 summit in Pittsburgh later this week.

There is a third possibility. Rather than try to hit back at the U.S. on the trade front, Beijing could conceivably threaten to slow or even stop its purchase of U.S. treasuries. China has expressed concern over the vulnerability of its monster hoard of U.S. treasuries to continuing weakness in the dollar and has hinted its desire to diversify its holdings of international reserves into other currencies. Washington well understands the gravity of this possibility, one reason, no doubt that it has eased off somewhat on charges that Beijing is manipulating its currency. What’s more, even if China were to allow the yuan to appreciate, unless the U.S. starts consuming less and saving more, its trade deficit would merely shift from China to some other higher cost manufacturer, imposing an implicit tax on the U.S. consumer.

Earlier today, Asian Development Bank chief economist Jong-Wha Lee told me that China and the U.S. should put minor trade spats aside and focus on finding ways to re-balance their economies. The Chinese need to learn to spend more to help reduce their trade surplus, and the Americans need to learn how to save. “Domestic politics is important, but [a country’s] legitimacy comes from playing right as a global leader,” he said. “The two major players should work together to solve the global imbalance.”

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Reader Comments

Mike from NYC

September 22, 2009 08:35 AM

"unless the U.S. starts consuming less and saving more, its trade deficit would merely shift from China to some other higher cost manufacturer, imposing an implicit tax on the U.S. consumer."

Really? Name another country which produces audio and visual equipment, power tools, plywood, solar panels, and almost every other consumer product, except perhaps clothes, that consumers buy.

American corporations, cheered on by Wall Street, exported jobs and manufacturing the way American corporations used to ship American products overseas.

Our leaders inferred that shipping manufacturing overseas would create more room for other industries to develop. I'm still waiting for what will replace manufacturing and employ millions of Americans. Financial services? Nah, they've taken a hit in their reputation as being smarter than the rest of the world twice in the past 10 years and even that industry is being looked down on from less sophisticated countries.

CompEng

September 22, 2009 09:40 AM

I don't normally say this, but this writing is truly crap that seems intended to convey very little except to gently stir the pot by pointing out a few bland truisms that everyone knows while trying not to make anyone *too* unhappy with the author. It's a trend in journalism that ought to be resisted.

GOOD GRIEF!

September 22, 2009 11:36 AM

And China doesn't DEMAND the Technologicval Crown Jewels of America, when they 'permit' American firms into the Motherland????? And Chinese exports are safe from defects, toxins, pests, and other life threatening dangers???? Tell us about their infested pallets....the kitchen cabinets full of chemicals.....and carpets, even US carpets, are NOTORIOUSLY chemical 'ponds.' But the politicians ONLY respond to campaign contributors. Maybe WE'RE the STUPID ONES, re-electing the Hookers of DC, over and over, and over, again, and again, and......

15 year old 10th grader

September 22, 2009 01:50 PM

hmm this is sumthing to think about.i mean really why would he stop trade marketing.//////"Obama was only throwing a bone to protectionist law makers in Washington in order to gain some traction to push through his wishes on more pressing issues such as global warming and climate change" i dont think that is true!!!

15 year old 10th grader

September 22, 2009 01:53 PM

"Chinese President less Protectionist than Obama?"is this true?

john mayer

September 22, 2009 03:22 PM

why dosen't anyone listen to my music anymore?

nanheyangrouchuan

September 22, 2009 05:50 PM

What a gross display of panda hugging by "business"week. China is rife with tariffs on any product anti-foreign, levying a 25% to 45% tax on anything imported and going so far as to levy the same levels of taxes on foreign branded items produced in Japan.

Who wrote this article? Someone from China Daily, All Roads Lead to China or Thomas Friedman himself?

hsr0601

September 22, 2009 08:01 PM

1. About two thirds of deficit in the U.S. accrue from oil import.

2. As with "Inaction" cost, $9trillion over the next decade in Medicare, Medicaid and Social Security, supposedly the same is of inaction on the 21st energy bill to determine war & peace, catastrophe & prosperity. For the global economy to reign in the runaway price of fossil fuels, "Sustainable Option" will be indispensable.

3. Looking to worthless, painful and wasteful oil wars, namely, the "Original Source" of this great recession, to waste time bickering over meaningless things and drag feet on a defining energy bill are sure to shake the embryonic effect of stimulus package that is an interim measure for build-out of a new foundation.

4. As the overall oil reserve in Middle East, let alone the rest of oil-producing areas, is on the decline more than known, the region blessed with affluent sun rays also needs to ready for a new groundwork, particularly in this context AEU is beginning to concentrate on future energy and Iranian EV is rolling out recently, the countries in the region will never stand still on the occupation, that means no matter what the result is, the repetitious mistake at the cost of invaluable lives and gigantic spending will end up with a heartbreaking tragedy once again.

5. Facing a sharp downturn in fossil fuels all over the world, the world-wide overpopulation growing consistently is using up tremendous fossil fuels at an alarming pace. Especially when the own conventional resources in some dense countries is facing drastic dent, it adds up explicitly.


6. For that reason, it is widely accepted that the price of fossil fuels is expected to go up and up simply, which is behind all but major states taking a bold and speedy action in a bid to put the global economy on a sustainable and solid ground.

7. Thankfully and interestingly enough, 100s of Companies (with $13 Trillion) Are Demanding Strong Climate Deal in Copenhagen just like environmental activists, a coalition of more than 500 Global Businesses is also demanding ambitious new climate deal, and the report by Blair and the Climate Group, a London-based nonprofit organization, found a climate-change accord among all countries would spur economic growth and create as many as 10 million jobs by 2020.

8. Currently, a 21st energy bill has passed the House and is making its way through Senate. According to CBO, this bill known as more progressive generally would trim budget deficit by $24.4 billion of a net gain.

9. I think the world is eagerly looking forward to Americans' participation, and if it were not for world-wide massive job creation, the world can not pull the economy out of this recession successfully.

10. I'd say only science and innovation can meet this challenge, and the science enough for all around the globe to live in harmony is awaiting final assembly by way of innovation. It seems to me that this great recession is pitching us a serious lesson to make sure we build a bridge for future generations, otherwise, our generation, too, is falling off the cliff.

Thank You !



123xyz

September 22, 2009 08:13 PM

"...slow or even stop its purchase of U.S. treasuries," in response to tires tariffs? And, exact their own tariff on chicken "feet" imports and American made auto parts? How funny.

tom h.

September 22, 2009 08:40 PM

This happens at least once during every presidency. Bush did it with steel to curry Rust Belt votes before midterm elections. Both sides know this is domestic political theater, so a full-blown trade war is unlikely.

littlescherzo

September 23, 2009 09:58 AM

Indeed Hu upstaged Obama this week on every major issues that count.

- On trade he stated that China won't go for a tit-for-tat over the US 421 action on Chinese made tires, but the US 'should not do it again'. The article above correctly pointed out that China needs not retaliate in kind. One of the development being watched is the movement of the Chinese RMB, it closed today at 1-to-6.826.

- on the climate change front, Hu asserted that China would increase its renewable and nuclear energy consumption to 15% of the national total, and by 2015 China's would be substantially reducing its carbon emission by comparison to 2005. These are hard numbers, while the US is still miles away from a concrete commitment as a result of delayed action and perhaps weak leadership. In the eyes of the world, when and if the US finally arrived at a national commitment, it would not be as impressive as a developed nation and the world's leading economy.

The contrast in the two governments' preparedness and coherence in their decision making could not be more obvious.

MCC

September 23, 2009 05:10 PM

"Mike from NYC" needs to put more thoughts into his thinking.

There are other countries waiting in line to be the next manufacturing hub. If cost of production in China goes up, businesses will seek out another low-cost country to manufacture at.

TBOregon

September 23, 2009 11:47 PM

The Fed reserve is a scam, (we will loan you money, (print money as needed) that isn't backed by anything, if you use it to buy something that is worth something, or you can loan the money we loan you, to make more money, that isn't guaranteed, by anything, but you'll have more of it)) the dollar is based off of nothing more than the amount owed to countries that own it, and how much they are willing to throw away, should they say its worthless.

The smart ones are buying property on USA soil with the useless US currency.

Corporate America sold itself out when it moved the millions of jobs from US soil. If the world decided to "cut off" the us dollar, they would lose initially, as their stockpiles of US Paper would be as worthless as it actually is. But they could only get away with by using a world currency that had an actual "backing" of a "valued" commodity.

So Obmama can't be a protectionist as we off-shored half US manufacturing industry now, and our dollar would collapse to nothing overnight.

@Mike from NYC

September 24, 2009 04:54 AM

The problem lies not with Chinese exports to the US. The ultimate problem lies with US consumers over-spending and saving too little. Most of the stuff that China exports to the US are daily necessities that the US has ceased to produce long ago anyway, i.e., things like clothing, shoes, toys, household goods, lower-end consumer electronics. Even if the yuan shot up against the dollar and Chinese stop exporting, production of these products will simply shift to higher cost Mexico, Vietnam and Indonesia. But they will NEVER go back to the US. As such, if China stop exporting, the US treade deficits will RISE (assuming US consumtpion stays constant) because of higher prices instead of fall.

@Mike from NYC

September 24, 2009 04:54 AM

The problem lies not with Chinese exports to the US. The ultimate problem lies with US consumers over-spending and saving too little. Most of the stuff that China exports to the US are daily necessities that the US has ceased to produce long ago anyway, i.e., things like clothing, shoes, toys, household goods, lower-end consumer electronics. Even if the yuan shot up against the dollar and Chinese stop exporting, production of these products will simply shift to higher cost Mexico, Vietnam and Indonesia. But they will NEVER go back to the US. As such, if China stop exporting, the US treade deficits will RISE (assuming US consumtpion stays constant) because of higher prices instead of fall.

Business Nguyen

September 24, 2009 05:18 AM

The labor cost in Southern China (Guangdong province) is at least two times than Vietnamese labor cost, as far as I know, and possibly two or three times higher than labor cost in India, Cambodia, Philippines, Indonesia etc. Even with the same salary (calculated based on US$), the purchasing power of a Chinese worker is higher than in other countries. But to repeat a manufacturing success like China require much more than labor cost. It require well supplied pool of highly discipline and skilled, relatively well-educated and after all, diligent workforce as well as excellent infrastructure, government support, etc. At the moment and possibly, in foreseeable future, it is very difficult to find a country which can be able to repeat this wondefull achievement. Vietnam may be the only potential country, given it can overcome current hurdles from government policies and relatively weak infrastructure.

Xiang Yu

September 25, 2009 10:21 AM

China is less communist than US today. China is less militarist than US today. China is less aggressive than US today. What China is not behind US today is that China is growing much faster.

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BusinessWeek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies. Eye on Asia’s bloggers include Asia regional editor Bruce Einhorn, Tokyo reporter Ian Rowley, Korea bureau chief Moon Ihlwan, Asia News Editor and China Bureau Chief. Dexter Roberts, and Hong Kong-based Asia correspondent Frederik Balfour.

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