Tuesday, 29 September 2009

Chinese tyres vs American chicken

There’s a spat going on between the US and China that is threatening to become a trade battle, if not a war. The US imposed tariffs of 35% on Chinese automobile tyres on the grounds that imports were surging and that the domestic industry had to be protected “temporarily”. China immediately appealed to the WTO and there the matter stands now.

But China is a prickly nation. It is quick to take offence. It announced last week that its launching an investigation in American “chicken parts” being dumped in China and putting Chinese poultry farmers out of business. Of course, this was entirely unrelated to America’s action on its tyres.

Reading this made me sit up. Is America capable of exporting something that undercuts China ?? How on earth was that possible ? But it indeed does seem to be the case. The “chicken parts” in question are wings and legs. Apparently these have no use in the US – they are virtually worthless and go for 2 cents a pound. But these are delicacies in China – one of the quaint experiences of mine in China is to see elderly women go out early in the morning to buy fresh chicken legs, just as Indian women might buy milk. These “chicken parts” sell for 40 cents a pound in China. Lo and behold America is cheaper than China !

A spat is brewing and if nationalistic fever is stoked (all too easy in both the countries), this can escalate into a mini trade war. This is exactly what the world does not need today, although politically this will be, unfortunately, popular. It will be a sad day if the world’s economic direction is dictated by the likes of Rush Limbaugh and the prickly faceless mandarin in Beijing.

These are difficult times for free trade. Capitalism is on the defensive and free trade is becoming a four letter word to far too many people. But it is precisely in these recessionary times that the world needs more of free trade, not less of it. But then a free market evangelist is somewhat akin to a paedophile these days.

Whatever might be your views, surely there are more worthy causes to fight wars on than chicken feet !


A journey called Life said...

interesting article and a nice point of view

thethoughtfultrain said...

Most of the American fast food guys specialize in chicken wings and lollipop(legs) !!! I find it hard to believe that wings and legs useless in the US!

Coming to the more important issue, this looks like a very prickly battle indeed what with national egos and a "tit for tat" business regime.

athivas said...

Nice read,thanks for sharing!

//This is exactly what the world does not need today, although politically this will be, unfortunately, popular. //

Not only this, Ironically, only that which is really not necessary gets popularity these days!!

Hang said...

I think the decision to impose tariffs of 35% on Chinese automobile tyres is purely a political decision. Because the decision does not benefit Americans economically and US still need to import tyres from another country at a much higher price. It's bad for both American consumers and Chinese tyre manufacturers. I've noticed that many American industry experts have also expressed similar views.

Protectionism has been rife since the credit crunch. It is just not called 'Protectionism'.

Sandhya Sriram said...

My honest opinion - i dont believe in the concept of complete free trade - for two reasons - a > each country has to go through its evolution in technology and hence countries could be at varying levels. In a country like India where growth is more important at this stage when compared to competitive growth, interference in dumping is absolutely essential.
b > second reason ofcourse is the credit to the exchequer because of the duties.
But having said this, the sad part is that socio-economic conditions are not the determining factors. it is rather political which kills the very purpose.

Anonymous said...

If not the chicken, it would be something else. Both countries are probably itching for a fight and need to blow off some steam. I only hope it does not escalate. -DA

Exkalibur666 said...

Nice article. I completely agree with DA and Hang. Guess more of this would happen especially in the back drop of IMF prophesizing the demise of the $ as the worlds premier currency and hiers apparent according to the IMF are Euro and China's very own RMB Yuan.

Ramesh said...

@AJCL - Thanks

@thoughtful train - Didn't know it was called lollipop !! Yesh there's too much talk of protectionism going on

@Savitha - It does seem that way, isn't it - what's sensationally reported in the media are often trivial or misguided stuff.

@Hang - Of course it was a political decision as was the response from China. You are right, there's too much slant to protectionism these days.

@DA - Oh yes, they would have spat over something else. Somehow I think this is only sabre rattling and won't escalate - both sides know that escalation would be disastrous.

@Exkalibur - Yes, the dollar's reign as the unquestioned global currency is over, but the problem is that the likely replacements are not much better either !!

Ramesh said...

@Sandhya - Understand where you are coming from. Consider for a moment the position of the voiceless and faceless consumer - many millions of them as opposed to relatively few producers. Why should they be denied access to cheaper products in order to support a few producers. We want to protect a few farmers but are prepared to let millions of consumers pay a higher than necessary price. Protectionism never works, except for the privileged few.

Sandhya Sriram said...

i agree with you Ramesh that there are lot of essential items which for which millions of faceless consumers pay the price like oil where the issue is not local competition but rather the amount of money it generates.

But i still cant convince myself with the concept of free trade. someone who buys a jack daneil for 2000 can as well give another 2000 to my country's exchequer or someone who can afford an imported age defying cream for Rs.300 can pay another 100 for my country's development.

But then, the tool is just not used the way it should be. otherwise, how could china dump the country with lead painted plastic toys which are proven to impact young growing brains and the local producers catching up at an faster pace with equally low quality toys and there being no intervention to stop either the import or local manufacture.

kiwibloke said...

Nice article and some very passionate points of views for and against protectionism. My two cents worth - in a manner of speaking even the highly contrived processes behind international mobility like visas/work permits etc is a kind of protectionism which the world overlooks when talking trade barriers. Ramesh, you did write about this in an earlier blog though. Unfortunately the west believes in this form form to the point that some times one tends to question if this is race based - i.e., with a Kiwi passport I can virtually travel the world visa free (notable exceptions India and China). One wise old PM of India commented about 9 years back on outsourcing at a seminar in the US: If people can't go to where jobs are, jobs will come to where people are.

mahesh said...

Protectionism has been rife in the US since the credit crunch in one way or the other. This is just another glaring example of the same. The US is probably trying to fill its empty coffers by indirect taxation and also trying to dissuade imports from China??

On the Chicken part its an amazing story of how globalisation can help utilise in a different part of the world what is not used in your part of the world.

Thanks for the informative post...

Ramesh said...

@kiwi - Immigration law is the worst form of protectionism. No doubt of that. Shame on the so called standard bearers of freedom !!

@Mahesh - World ove, protectionism is rearing its head. Its a sad fact of life today.

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