Well folks, it’s a New Year, but the issues always seem to stay the same.
We gave ample coverage to tariffs imposed by the U.S. government on Chinese goods last year, and honestly, I thought we were done with the whole thing. This was wishful thinking. Evidently, the Chinese take issue with additional levees on their imported steel, tires, and multiple other goods.
The Chinese have appealed to the World Trade Organization for a second time, calling the tariffs a violation of WTO treaties. It will come up before a counsel, which will examine the claims further. The first time China made the appeal, the U.S. blocked it. They are not allowed to block a complaint a second time.
Forty years ago, when China was less involved in the world economy, a claim like this would be easily dismissed. Since China produces, manufactures, and assembles the mast majority of consumer goods for the world, I highly doubt the U.S. will find a sympathetic ear for their case.
Then, you have to examine the fact that China holds the lion’s share of U.S. debt. China now holds the key to total destruction of the U.S. dollar. The U.S. is not really in any position to tell China what to do. It seems we are going to try anyhow, as President Obama’s nominee for the Secretary of the Treasury Tim Geithner decided to send a little love note to China yesterday (Jan. 27).
In it, he claimed that China is lowering the value of their currency, the yuan, to keep their exports high. In effect, Geithner claims that China’s prices are too low, and that we can buy too much with our money. He had better pray that they keep doing so, as our dollar will rapidly sink in value with a rising yuan.
I bet you were wondering when I was going to get to the part about the tires. Okay. Chinese tires will not stay cheap for much longer than three months, maximum. I have already said that the world will abandon pegging transactions to the dollar this year. This means that the cost of buying Chinese goods is about to significantly increase. Everything from tires to TVs will be affected by no less than 10% this year.
This will put more pressure on suppliers like Michelin, Bridgestone, and Goodyear to produce. If there is negligible difference between the cost of a Chinese tire and a Bridgestone, you can bet people will take the Bridgestone. This will force prices higher on existing stocks of tires, and future production, at least in the OTR market, with a decent sized spillover into the passenger and light truck markets. If this happens, the U.S. may very well end tariffs without the interference of the WTO.
Many of these decisions rest on the shoulders of our new president. I would suggest that if he intends to take these kinds of stands against China, that we stop asking them to finance our debt. It just seems a little tacky to yell at someone who just paid for your meal.
If you have comments to share, send to me at [email protected].
– Jim Smith
