Trade showdown looms as US and China flex muscles at home

Sep 18, 2012

White House race and China's leader transition put strain on superpowers' trade relations

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DOMESTIC political issues in the US and China are straining ties between the two superpowers, says the Wall Street Journal. President Barack Obama is asking the World Trade Organisation to rule that Beijing is illegally subsidising cars and car parts. Mitt Romney, who is running ads in Ohio criticising the president on trade policies toward China, called the move "too little, too late".

Chinese leaders, meanwhile, are under internal pressure to appear tough for the imminent leadership transition. The ongoing showdown with Japan and other regional powers over ownership of several Pacific islands is one expression of the need, says the WSJ. A trade showdown with the US could be another.  

The Guardian says the action at the WTO is explicitly to stop Chinese auto industry aid from threatening jobs in the key electoral battleground state of Ohio. The ratcheting up of the trade tension between the world's biggest and second biggest economies prompted immediate tit-for-tat retaliation from Beijing, which announced its own WTO case against the US.

The paper points out that no president since Roosevelt in the 1930s has won an election with the jobless rate as high as 8.3 per cent. With unemployment becoming the de facto election issue, taking on China could be a winner for Obama.

Jobs in the US auto parts sector dropped by roughly half between 2001 and 2010, while US imports of auto parts from China have increased seven-fold, according to the Obama administration.

Ohio, one of the most important of the six swing states likely to decide this year's tight race for the White House, depends heavily on the auto industry. "Export subsidies are prohibited under WTO rules because they are unfair and severely distort international trade," US trade representative Ron Kirk said in a statement. "China expressly agreed to eliminate all export subsidies when it joined the WTO in 2001."

Scott Paul, executive director of the American Alliance for Manufacturing welcomed the administration's move. "Our auto assembly sector, now back on its feet, could be undercut by China's cheating, causing irreparable damage to the heart of America's productive economy."

The two sides will now have a 60-day cooling-off period in which to seek an agreement.

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