Toshio Matsuda, Commentator & Intl Economist

Straight from the Shoulder No.570

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Normally, advanced nations have filed complaints against developing nations concerning unfair trade issues caused by dumping. Approximately 450 dumping complaints are expected to be filed with the WTO in 2009, twice the number filed in 2008. (note: dumping is the practice of exporting products for overseas sales below the price charged for the same products in the domestic market or at a price below the cost of production)

In regards to dumping, China has received the highest number of protests, complaints filed against it by other nations with the WTO, and similar negative reactions.

Recently, however, China has surprisingly taken the offensive by filing dumping related complaints against other nations.

A trade war erupted between the US and China when the Obama administration suddenly imposed a 35% tariff on tire imports from China in September 2009. In October 2009, China imposed a 36% tariff on U.S. chicken and car part imports after immediately warning the US that it may be in violation of dumping those exports. In opposition to this move, the US placed anti-dumping tariffs on Chinese made steel pipes, glossy paper, and salt products on November 4th and 5th. Twenty four hours later, China launched an investigation to check if the US was exporting car parts as a way to avoid paying import tariffs on finished automobile exports. If ordinary tariffs were placed on finished automobile imports, it may drastically change the ordinary profits currently announced by the Big Three (Ford, Chrysler, and GM). Then, on November 10th, China imposed a 35% tariff on US made chemical agents which are necessary for nylon production. In a similar move on October 10th, China ordered the US to set aside money for fines for the import of specialty medal used in generators until the end of the investigation. Subsequently, the US announced at the end of 2009 that it would again impose a tariff on steel pipe made in China.

According to the US Department of State, imposing anti-dumping tariffs on Chinese products is not a big issue since it accounts for less than 1% of the total trade volume between the two countries. Furthermore, problems also occur between advanced nations, for example European countries, and are not limited to those between the US and China. These types of problems are all a part of foreign trade transactions. In spite of many problems, relations between the US and other countries, such as European countries, have been extremely good thus far. However, considering that China is the largest holder of US Government bonds, the Obama administration seems particularly apprehensive about straining US-China relations as a result of the current anti-China trade issue.

China believes that if an anti-China trade war has started then the US is the one responsible for it.

In addition, China has a deep desire for free trade with the US and claims that its stance regarding unfair US exports is justified. Opposing the unfair, anti-China tariff measures implemented by the US, some assert that US Dollar bonds should not be purchased. However, it is not possible for the Yuan to peg the US Dollar at the present time. This would be a suicidal move that would send the value of our financial assets into a tailspin.

At the end of last year, China replaced Japan as the country with the world’s second largest GDP. I wonder if China will cease to be economically dependent on the US with the goal of reversing the situation by making countries such as the US and Japan dependent on it instead.

For this to happen, it is important for China to further increase domestic demand for investments and to further domestic consumption based on those results. When China’s domestic consumption level surpasses that of the US, the Yuan can release itself from the grip of the US Dollar, making the world economy largely dependent on China. China must realize that the major principle in economics is that “customers are king”, not manufacturers or lenders. If China learns that rulers are buyers and borrowers, that alone will quickly bring us to the day when China dominates the world.