The current trade dispute between China and the US - on the surface - really makes no sense.
China to investigate U.S. car subsidies China is preparing to launch a trade investigation into whether US carmakers are being unfairly subsidised by the US government, according to people familiar with the matter.
The move comes at a time of heightened trade tensions between the two countries after the US imposed duties on Chinese tyres last month. Many warned this would prompt Beijing to retaliate.
Interesting. Is this shallow, or deep?
China is using extraordinary measures to keep the dollar high and the yuan low. This has huge effect on trade. Words from the US to China have no leverage, at least compared to China’s near-term benefit from continued exports.
What has leverage? An import duty on tires … really … why tires? Is there some shallow US domestic political motivation? Or is this an opening move with enough lead time prior to Obama visiting China?
The Chinese government used to subsidize all sorts of industries, and they probably still do to some degree. At least some of that goes into exports. Tagging the US for subsidizing an industry - one that likely does more imports from China than exports to China - is odd. If the yuan rises relative to the dollar, then US exports to China become more competitive. Bit of a doubled impact on the Chinese economy (less exports and more imports). Discouraging imports from the US through import duties could lessen that impact. Is this a pretext for the logical counter-move (but not a strong move). Again, is this shallow or deep?
In this game, China is on the wrong end of the lever. Less trade between the US and China is likely to hurt China far more than the US. There may be some point in the future when they can absorb the loss of exports to the US. Is China at that point now? Or more relevant, do the Chinese leadership believe China is at that point?
My bet is that the Chinese leadership is too conservative, too cautious to want to risk too much change. China is a country of “rule by men”, not “rule by law”. Obama meeting with the Chinese leaders would be the point where - privately - the game is made plain … if this the deeper game. If China allows the yuan to rise after the meeting - that would be a big clue. (Likely China will keep buying dollars, but at a lesser rate - a sort of compromise.)
Is this shallow, or deep?