The current administration has recently filed a complaint with the WTO (World Trade Organization) against China for unfair trade. This relates to its subsidies and tariffs for its auto industry. Due to the fact that it is China, and an election year there has been much political coverage on this story. Michigan and Ohio, which have a high concentration of auto related jobs, are key states that are important in the election. Mr. Romney has criticized the President about how we are not holding China accountable for their government involvement in what should be a free trade competitive industry. This issue, and who appears to be stronger on it, could determine the next President. Due to the political story, however, there has been little analysis of the specific issues of the case.
Some of the recent steps of unprecedented government intervention in the local auto industry are as follows. They invested over $30 billion into their top car manufacturer in the country, taking a majority share of ownership. A government panel was appointed to come in and restructure the company. This government run panel fired and replaced the CEO, closed dealerships to focus more on exports, and gave them unusually lucrative tax breaks. They even violated their own longstanding laws by shortchanging investors in favor of local workers. They basically broke every rule in the book, and then burned the book. The government still owns more than 25% of this company, and refuses to sell its shares.
The entity that I am describing in the details above, is in fact the United States government, not China. These are the steps taken by the Obama administration in the auto market over the last 4 years. If we add in the cash that the government has used to “invest” in GMAC and Chrysler, the amount is actually $38 billion. The actual complaint filed with the WTO is that the Chinese government through subsidizes and tariffs has funded their auto industry to the tune of $4 billion. They are being accused of doing 10.5% as much as we did. Imagine working at the WTO, and seeing this complaint come across your desk. Do they have an “Are You Nuts!” stamp?
Americans have a general misunderstanding of the benefits of free trade to begin with, but our President should know better. Politically it always seems to work well to target China for unfair trade. Mr. Romney may want to also file absurd complaints about unfair trade, but we are only allowed one foolish President at a time. There may be some legitimate cases, but this is not one of them. Actually he should feel lucky that every foreign country that makes cars doesn’t file a claim against us. Maybe we can make an unfair filing complaint for China subsidizing their solar industry next. I hope the WTO hasn’t heard of stimulus or Solyndra.
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