The United States and China filed dueling complaints at the World Trade Organization on Monday, sharpening what has become a steady trade skirmish even as the nations’ leaders pledge to expand economic cooperation between the world’s two largest economies.
U.S. officials accuse China of giving hundreds of millions of dollars a year in subsidies to its auto parts makers in order to boost its own exports.
“Export subsidies are prohibited under WTO rules because they are unfair and severely distort international trade,” U.S. Trade Representative Ron Kirk said in a statement on Monday. The subsidies to auto parts makers were provided through “dozens of Chinese legal instruments,” including cash grants and preferential terms on loans.
The Obama administration has steadily amped up enforcement actions against China at the WTO through tariffs and other duties. The government has also added a new China unit in the trade representative’s office and pulled in expertise from the State Department and other agencies to bolster Mandarin language and other research.
In its own filing, the Chinese government challenged U.S. tariffs on Chinese goods that the Department of Commerce has determined are being “dumped,” or sold at unfair prices on U.S. markets.
The administration’s action comes as several states with prominent auto-manufacturing industries have emerged as top battlegrounds in the presidential election. President Barack Obama made campaign stops Monday in Cincinnati and Columbus, Ohio, and will travel to Wisconsin, another auto-industry center, later in the week.
After a tumultuous week of headlines focused intensely on unrest in the Middle East, posing problems for Obama and GOP challenger Mitt Romney, both campaigns have pledged to turn to the state of the economy. In addition to talking up the trade case, Obama is expected to keep hammering Romney’s record in the private sector of investing in companies that outsourced jobs to China.
Obama has heavily promoted the auto industry bailout that he stewarded in 2009 and that is widely credited with spurring a comeback among struggling U.S. car manufacturers and reviving economic fortunes in Ohio, where unemployment trails the national average. Today, the industry directly employs 54,200 in Ohio and supports more than 800,000 total jobs in associated industries in that state, according to the White House.
On Monday Romney quickly pounced on the WTO filing, accusing the administration of waging a “campaign-season trade case” that “may sound good on the stump but is too little too late for American businesses and middle-class families.”
En route to Ohio on Air Force One, Obama campaign spokeswoman Jennifer Psaki and White House deputy press secretary Josh Earnest retorted that the complaint against China was “months in the making” and not a political maneuver timed to coincide with Obama’s trip.
“Mitt Romney has a special kind of chutzpah that he is going to criticize the president on an issue that he has been such a strong advocate for,” Psaki said.
Major unions lauded the latest trade action and emphasized the U.S. auto industry bailout at a critical moment in the financial crisis. “This isn’t just some political moment; this is part of a pattern of action,” said United Auto Workers president Bob King. The United Steel Workers also released a statement praising the latest trade enforcement effort. Union support could help sway voters in key industrial states.
The United States runs a large and steady trade deficit with China— typically from $25 billion to $30 billion monthly. While the Obama administration has focused on the country’s potential as a large and growing market for U.S. exports, there has been concern, as well, that the deficit has siphoned off some middle-income manufacturing jobs. China has tried to push its manufacturing expertise into increasingly sophisticated areas, seeking to challenge top nations such as the United States, Japan, Korea and Germany as a manufacturer of high-tech equipment and industrial goods.
Although China has been a member of the WTO for more than a decade, it still is not considered a “market economy.” Many of its policies have been challenged by the United States, Europe and others who argue that China has unfairly limited raw material exports needed around the world, improperly subsidized cutting-edge solar and other technologies to stunt the growth of foreign competition, and generally tried to tilt the playing field in favor of its exporters.
Monday’s trade complaint filings show the tit-for-tat use of the WTO by China and the United States to press their economic claims. While regular political and diplomatic talks between the countries routinely cite the importance of trade and fair play in one of the world’s central economic relationships, there’s a long list of disputes— including questions about China’s close control of its financial sector and the large role of state-owned companies in that economy.
The United States has also pressed China to stop controlling the value of its currency, pegged closely to the value of the dollar at a level that supports the country’s exports. Romney has argued that he would be more aggressive on the currency issue, citing a semi-annual Treasury report to label the Chinese government a “currency manipulator.” The Obama administration has avoided an open confrontation on Chinese currency, instead using public statements and private diplomacy to urge the country to relax its rules.
The value of China’s currency has been rising, and there are signs the country is progressing toward a more open financial system— considered a critical step in building a more open economy and allowing Chinese households to control more of the nation’s wealth. But there is concern now that slowing growth may also put a damper on reform as Chinese officials eye state-directed investment and other traditional tools to try to meet annual growth targets.
The complaint filed by the United States is technically a request to open talks with China about their auto industry policies. If those talks do not resolve the issue, the administration would ask the WTO to set up a dispute panel to review the evidence and decide if China is violating the agreements it signed when it joined the trade body.
The United State has typically fared well at the WTO, winning most of the cases it has brought against China. But the process can drag, and the benefits to industry are sometimes disappointing. In some cases, dispute panels have spawned settlements that allowed better market access. In others, the lag between the start of a particular Chinese policy and a WTO ruling against it has given China more time to protect and build its national champions. The United States recently won a case against the limits China places on electronic payment companies, but years of protection have allowed China UnionPay to become a strong global competitor.
Auto parts have been at the center of trade troubles between the two nations before. The United States won an earlier case against import tariffs China had imposed on American-made auto parts. But auto industry officials say the victory did little to stop the dispersion of auto parts manufacturing around the world, accelerated by the North American Free Trade Agreement between the United States, Canada and Mexico, and by the building of auto plants in China by General Motors and many other auto companies with an incentive to buy parts locally.
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