Home > Uncategorized > 2011/12/15: Quick Post: US Jobs: Interesting Take on Chinese Import Duties

2011/12/15: Quick Post: US Jobs: Interesting Take on Chinese Import Duties

© 2011 ROHR International, Inc. All International rights reserved.

Nowhere is the Law of Unintended Consequences more evident than in global commerce. And especially as it relates to the myriad permutations of international trade disputes. So it shouldn’t be any surprise that the current move by China to slap duties on cars manufactured in America is the third round of something that started with the US action to block Chinese tire imports at the World Trade Organization. China had challenged that ban, but according to the front page article in today’s Financial Times the challenge was dismissed.

And so began another couple of moves on the international trading chessboard which included poultry as well as automobiles. It actually might be a bit humorous and characterized as ‘typical’ that the auto import confrontation is not much more than a game of Chicken if it didn’t have such serious consequences. And those include the impact for American workers; yet not exactly in the way that most observers might assume. In fact, the European auto manufacturers are suffering far more than their American counterparts.

In the first instance it is important to note (as mentioned in the Financial Times article) that “China overtook the US in 2009 as the world’s largest vehicle market, and sales there account for a substantial chunk of profits for BMW and Mercedes, who build the SUVs they sell globally in North America.” The duties also targeted cars made by General Motors, Ford Motor, Chrysler and Honda’s US unit.

Whatever might come out of a US challenge at the WTO to China’s actions, that takes months. In the meantime the Chinese have made what we consider a rather clever bet: how many workers in the US are affected by the Chinese ostensibly dumping tires, versus the number who work on the cars that roll on those tires? Talk about clever application of leverage to an industry.

However, there is a further twist. The premium European carmakers began building quite a few of their larger high-end vehicles that were in such demand in the USA to avoid the threat or reality of our import duties. In turn the US carmakers have done the same by off-shoring their production of many of those vehicles to… China. And that’s why the European automobile manufacturers will suffer financially far more than their US counterparts during this little imbroglio.

Aside from the financial aspect, it will also directly impact the American workers at the facilities of those European carmakers in the US. So it’s light-duty or temporary layoffs for the workers at the plants of the European competition for the American automobile manufacturers. And the latter are seemingly being rewarded for off-shoring their jobs to China in order to avoid the risk of significant import duties.

That speaks volumes about what’s wrong with the American jobs market right now. This is just one example of the additional domestic burdens arising from US Taxulationism1 (excessive tax, regulation and protectionism), which encourages US corporations to move their manufacturing overseas. Until the US gets an administration that is better at managing its international trading relationships as well as reducing the tax and regulatory burden, it is not reasonable expect that the job situation here is going to improve very much.

Certainly some companies can still be quite profitable. But that is on a selected subset of the broader range of endeavors they could otherwise successfully pursue in the US. Another FT article on the US ‘pay gap’ today is an interesting adjunct and reinforcement for what ails the American economy and labor market

General Market Observations and EXTENDED TREND IMPLICATIONS

Those are both much the same as the discussion provided in yesterday’s post offering a courtesy look at yesterday’s Rohr Report TrendView BRIEF UPDATE institutional edition. This is a summary form of the background and specific technical contingencies that are still consistent with all of our views of the past few weeks and previous posts. We encourage you to access it if you have not reviewed it already.

We hope you find this useful.

1Taxulationism © 2010 Alan Rohrbach & Jack Bouroudjian. All international rights reserved

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