Thomas DeMattia
16 November, 2009
Due: 02 December, 2009
English 1100-065
Response Paper #3
World War III: The War over Trade
With the United States recession gaining severity since the mid 2000s, much concern has been raised among many of the nation’s top businesses including steel, automobile, and tire companies, as well as many other industries and unions manufacturing goods in plants based throughout the US, on the topic of outsourcing many of our nation’s goods to foreign companies.
In other words, companies in certain industries producing goods throughout the US fear that if the US continues manufacturing and importing goods from foreign countries, although necessary competition for any growing economy, then they will gain an unfair advantage against locally produced goods because of lower production costs than the US making their good less expensive. This is why the US must find a way to balance out the needs of domestic business, while trying to be practical in using outsourcing to keep prices competitively lower for the economy. In recent economic activity, many companies have been opening up plants outside the US in attempt to take advantage of these lower production costs, and importing and selling the goods back in the US at lower cost than goods produced in higher costing US-based plants.
While foreign trade and outsourcing has many upsides in supporting an economy because other countries have greater access to certain resources, too much of either one can have negative effects as well, and right now the US is facing the largest trade deficit it has ever seen as they import far more goods than they export. Another concern raised by locally based businesses is that once the economy bounces back, the US will suffer from having outsourced goods because many jobs once available in the US are now being outsourced to foreign workers. In effort to

retain peace among labor unions working in industries being affected by outsourcing, President
Barack Obama has approved a bill that will raise tariffs placed on tires imported from China over the next three years, which should keep the unions from constantly troubling the government by seeking aid. Months earlier, politicians in the US voted to pass yet another tariff bill on nations that have loose emissions and greenhouse gas standards, such as China and India. The bill is now in its final stage, awaiting further approval. The two bills open the door for many future trade disputes, causing other nations, like China, which hosts many US production plants and provides the US with many exports, to retaliate using trading schemes such as imposing their own tariffs on US exports, bringing charges against the US for price fixing, and even dumping; when a nation sells its goods abroad priced below other similar products in the market to increase their own share of market. As it seems, the US and other foreign nations appear to be going back and forth in addressing and attempting to reform each other’s market troubles. While the US seems to be upsetting foreign nations, especially China, in its proposed solutions, China claims to have answers; and they come in the form of what looks to be retaliation. If the current dilemma between the nations escalates, what could result is a form of “trade war” where each nation goes back and forth imposing new rules and taxes as retaliation, ultimately harming the consumer who ends up paying higher prices for imported goods.
When on September 11, 2009 President Barack Obama approved a 35% tariff increase on
Chinese tire imports over the next three years, the United Steelworkers union, which represents most American tire workers, must have felt a major load lifted off their shoulders (Andrews A1).
China, on the other hand, felt much opposition toward this decision, and filed a complaint on
September 14 th with the World Trade Organization for what they believe are unjustified tariffs
(Andrews A1). The New York Times reports that the root of the problem arose when the United

Steelworkers union filed complaints with the International Trade Commission, who agreed with the union, and suggested that the US impose a 55% tariff on Chinese tire imports because of the market disruption that it has caused (US tire imports from China has tripled from 2004-2008), while four US tire factories have closed since 2006, with several more primed for closure this year leaving tens of thousands of US workers jobless (Andrews A1). The proposed decision was made with regards to a safeguard provision put in place by the US to help support China’s entry into the World Trade Organization (Andrews A1), which allows American companies harmed by
Chinese imports to seek governmental aid. Although these statistics are accurate in showing how outsourcing US jobs to foreign nations causes large numbers of Americans to lose their jobs, the suggestion to impose such a high tariff on imported goods does not seem to directly resolve the issue in this case because the tariff would only suit a short-term desire for US tire manufacturers to have a level playing field in the US on tire price, while the tariff is unlikely to cause a major increase in American tire manufacturing plants because China’s proposed retaliation appears imminent and could end up costing US tire manufacturers even more by imposing their own taxes to even out the situation. Within a week of the US imposing this tariff,
China had already suggested that it may impose charges against the US for dumping poultry and auto parts in China; in other words accusing the US for selling these goods for less than actual cost in order to secure the Chinese market for these items, which is also what the US suspects
China of doing with their tires (Maurer 4). Although I feel that in imposing this tariff the US did aid domestic business in the short run I still believe that they, in fact, acted quite prematurely on the issue, and could have avoided this conflict with China by meeting with them in front of the
WTO, who deals with the regulation of international trade among its participating countries. The
WTO could have played a mediator role between the US and China by acting as the neutral party

in the dispute, helping to find a solution reasonable for both sides. Because of such rapid retaliation threats from China, many trade experts and analysts across the country fear that a trade war could result between the two countries over the long run, but in fact Chinese officials have indicated that they would rather work out a peaceful trade solution (LeVine 58). This further proves that China is willing to negotiate terms involving the tire trade, and that such abrupt action should not have been taken by the US in protecting its economy in satisfying local unions and business in the short run.
Dating back to June 26 of this year, many politicians voted to pass a bill that would place yet another tariff on goods produced abroad. This bill, which awaits endorsement from the
House of Representatives before it reaches President Obama in its final stage of approval, would allow the US to tax goods imported from nations abroad that have low emissions and greenhouse gas standards (LeVine 58). The politicians argue that because US plants must take into consideration its emission and greenhouse gas levels, resulting in increased production costs which ultimately leads to higher prices and lower demand for their product, then the US should aid domestic businesses by taxing the imported goods, keeping product competition high and the sale of goods more reliant on product quality. If approved, this tariff would once again satisfy
US businesses in the short run by giving them what they want in limiting the growing number of outsourced goods, but in turn, this would damage US relations with trading partners in the longrun. Many US politicians such as Senator John McCain (R-Ariz.) and trade experts like Gary C.
Hufbauer who believes, “the tariff is playing with fire” argue this theory as well. China has already spoken out on the issue and argues that the trade infringes rules set by the WTO. In retaliation to the US tariff on its tires, China said it would accuse the US of dumping chicken and automobile parts in China, and in turn the United Steelworkers union filed a complaint with the

WTO that the Chinese may be dumping its steel pipe into the US (LeVine 58). China then retaliated with a 37.5% tariff on certain American specialty chemicals (LeVine 59). These are clear signs of what could become a critical trade war among the two countries, possibly resulting in increased inflation for consumers who would suffer the repercussions that would cause higher prices for imported goods because of the tariffs. It should also be considered that because this particular emissions tariff could also affect foreign nations other than China, the US could see a myriad of countries attempting to retaliate against the tariff, specifically by imposing their own tariffs against the US. Gary C. Hufbauer says other countries could claim, “We think this turbine from GE exceeds emissions allowances, because we count SUV workers driving [to the plant];”
“You can see how it [the trade war] could escalate” states Hufbauer. From a different perspective, economists say that much of the pollution and emissions produced by Chinese plants and factories comes from those that produce goods for local use (LeVine; 59), and since the tariff is limited to goods imported into the US, the US would only be placing tariffs on a relatively small amount of goods anyway. So for what it’s worth, I do not believe that the US should pass this bill for taxing products imported into the US by countries with low emissions and greenhouse gas standards because the trade war that could possibly result as an effect would likely hurt the US economy more than a tariff would help it. The US government must find a way to negotiate with its foreign trading partners in effort to retain economic tranquility. A key in the process of coming up with a solution is to find a balance where the US can suit its own domestic needs in keeping local business production and sales up, while also satisfying its foreign trading partners’ desire for export sales in the US. While in the midst of a worldwide recession, it would be rational to believe that a trade war resulting in tougher economic

conditions such as in inflated prices because of taxes would be harmful, as would job-cuts as a result of outsourcing.
With the passage of the US’ newest tariff bills comes much speculation and discomfort among not only the people of our own nation, but foreign nations as well. In today’s economy, an all too common phrase nowadays, the US can afford neither to lose jobs to outsourcing nor pay higher prices for goods consumed locally. US workers have sought governmental aid to reduce and regulate the benefits of outsourcing (cheaper production costs, cheaper-priced goods), which result in domestic job-cuts. Such are the issues proposed that have been brought up because of the tariff bills, one which has been approved and will raise prices of Chinese tires in the US with a 35% tax increase, the other being in the process of authorization which would tax goods imported to the US from countries with loose emissions standards, point to the bills and look to be inevitable for the US’ future. Instead of seeking a satisfying medium for trade with foreign nations, the US has begun imposing taxes, or tariffs, on goods imported from foreign nations and have proposed more for the future, upsetting other countries. In retaliation, other nations, specifically China, have begun proposing and enacting new tariffs against the goods imported from the US. Other forms of retaliation include accusing the US of trade violations such as price fixing. These signs seem to point to a future “trade war,” in which the nations would go back and forth in retaliation to each other, proposing new trade rules and tariffs. The end result would be inflated prices for imported goods worldwide, which would be slapped with tariffs and taxes left and right. In a time where many consumers are trying to watch their spending and hold on to their jobs, a rise in the price of imported goods would only harm the majority of consumers, while job-cuts from a rising number of outsourced goods would be even worse. And although the US does face a fair challenge in balancing the needs of domestic

business with the satisfaction of its trading partners, simply imposing tariffs, with all signs seemingly pointing toward a “trade war,” is not the answer.