China Import Surge Casts Obama Tariff as Phony War (Update1)
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By Bloomberg News
Sept. 17 (Bloomberg) -- Chinese consumers who buy $608 billion of goods from overseas are diminishing the prospects of a trade war with the U.S.
China’s imports, up 68 percent in five years, now amount to almost one-third of gross domestic product, according to World Bank data. The nation’s demand for foreign products is a boon for American companies, which exported $351 billion to China in the past five years.
U.S. President Barack Obama’s 35 percent tariff on tires from China spurred a Chinese investigation into prices of U.S. poultry and car products. Dangers of further escalation may be mitigated by the increasing benefit China provides the world economy. Poised to surpass Japan as No. 2 in GDP, its purchasing power is a lure to firms seeking new customers.
“As China depends more on domestic demand, its rise won’t be seen by the rest of the world to be as big a threat as some view it now,” said Shen Minggao, a former consultant to the World Bank who is chief economist in Hong Kong for the Greater China region at Citigroup Inc., the third-largest U.S. bank.
Tyson Foods Inc., the world’s biggest meat producer, entered China in 2001. Last year, the Asian nation accounted for 10 percent of the Springdale, Arkansas-based company’s $1.4 billion in beef sales and 12 percent of its $1.6 billion chicken sales.
Prevent Escalation
Meat consumption per person is about 20 pounds a year in China, compared with 89 pounds in the U.S., Tyson estimates. That helps explain why Tyson joined Hormel Foods Corp. and 32 other agriculture companies and industry associations this month to push the Obama administration to refrain from engaging in a trade battle with China.
“The size of China’s economy and the extent to which the nation is entwined with other major economies may prevent an escalation” of conflicts, said Lu Ting, an economist at Bank of America-Merrill Lynch in Hong Kong.
China accounted for a third of global expansion last year, according to International Monetary Fund data using purchasing- power-parity calculations to adjust for exchange-rate differences. Its growth this decade has averaged 10.2 percent, and it will overtake Japan next year with GDP of $5.3 trillion, surpassing its Asian neighbor’s $4.72 trillion, the IMF projects.
‘Dynamic’ Growth
Increasing consumer demand in China for foreign goods and services has been spurred by 4 trillion yuan ($586 billion) in stimulus spending. The import surge is helping reshape the region, with China passing the U.S. as Japan’s biggest export customer this year and also becoming the No. 1 export market for South Korea.
China is “providing a much more dynamic source of pan- regional growth, and ultimately of global growth” than Japan ever did, said Stephen Roach, chairman of Morgan Stanley Asia, based in Hong Kong. “China’s pretty open to both exports and imports.”
While some Chinese imports are components used in products that are later shipped to consumers abroad, that share is dropping. Government figures show it fell to about 33 percent last year from 39 percent in 2007. Analysts said the nation is likely to become a bigger final destination for global goods and services.
China’s advancing economy benefits from having the world’s largest population: At 1.33 billion, it is more than 10 times that of Japan. Chinese GDP per person was $3,300 in 2008, equal to Japan’s 1973 total, according to estimates by economists at Nomura International Ltd.
‘Early Stage’
“It just shows you that China is still at a very early stage of development,” said Robert Subbaraman, chief economist for non-Japan Asia at Nomura in Hong Kong, who worked at the Australian central bank.
Tyson -- along with Austin, Minnesota-based Hormel, the second-largest U.S. turkey processor -- and 32 other agriculture companies and industry associations pressed the Obama administration in a Sept. 3 letter to refrain from tariffs on Chinese tire imports, concerned that China would retaliate against U.S. products.
“For some, the Chinese market is the difference between profitability and possible bankruptcy,” the groups wrote to U.S. Trade Representative Ronald Kirk.
Gary Mickelson, a Tyson spokesman, declined to comment on why his company joined the effort. Julie Craven, a spokeswoman for Hormel, didn’t respond to requests for comment.
U.S. Factory Jobs
Obama said Sept. 11 he will boost by 35 percent the 4 percent tariff on $1.8 billion of imported Chinese car and light-duty truck tires. He acted on a petition from the United Steelworkers union that said surging imports are cutting factory jobs. The duties start Sept. 26 and last for three years, dropping 5 percentage points a year, according to a White House statement.
U.S. stocks showed little sign of investor concern, with the Standard & Poor’s 500 Index rising 2.5 percent since the announcement. American government bond yields are also little changed; China is the biggest holder of Treasury securities, with $800.5 billion. Benchmark 10-year notes closed to yield 3.47 percent yesterday, compared with an average 3.43 percent the past month.
Obama played down the danger of escalating tensions with China, arguing that trade rules must be enforced to build support among lawmakers and the American public.
Bilateral Ties
“We’re not going to see a trade war,” Obama said in a Sept. 14 interview at the White House. “We have rules on the books” and “we’ve got to establish credibility and enforcement of the rules precisely because I want to further expand trade,” he said when asked what he will tell China’s President Hu Jintao at the Group of 20 meeting next week in Pittsburgh.
While China’s Ministry of Commerce said it “strongly opposes” Obama’s decision and announced probes of chicken and auto products from the U.S., it also sought to underscore the importance of bilateral economic ties.
“We don’t want to see individual trade-remedy cases hurt the trade and economic relationship between China and the U.S.,” Yao Jian, a ministry spokesman, told reporters Sept. 15 in Beijing.
There may still be a risk that tensions will become more heated because China lacks the political and military ties Japan has with the U.S., said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington.
“The potential for trade friction, and any other kind of friction, is much higher with China than Japan,” Lardy said. “We don’t have a security relationship with China and we’re not likely to have one.”
Steel Pipes
U.S. Steel Corp. filed yesterday a petition with the U.S. International Trade Commission seeking dumping and anti-subsidy duties of as much as 90 percent on $400 million of Chinese-made steel pipes used in chemical, petrochemical, refineries and related operations, according to Roger Schagrin, a lawyer for the U.S. producers. The U.S. imposed tariffs this month on a different type of steel pipe from China in a separate case.
A Chinese Ministry of Commerce official, asked about the U.S. Steel filing, said that giving in to protectionism will only provoke more such actions. He spoke on condition of anonymity.
Obama and Hu are scheduled to meet at the summit of leaders from the world’s largest developed and emerging nations Sept. 24-25. The G-20 at its November and April gatherings committed to “reject protectionism” and promote global trade.
Rising Rank
China’s ascendance comes after it already surpassed Germany and the U.K. in global GDP rankings earlier this decade. IMF projections indicate its economy will climb to $8.5 trillion in 2014, about half the size of the $16.9 trillion estimate for the U.S.
Premier Wen Jiabao said last week tax cuts on property and car purchases, subsidies for low-income households and a three- year 850 billion yuan plan to improve health-care coverage were aimed at boosting income and spurring domestic demand.
Wen’s government is targeting 8 percent GDP expansion this year, after the growth rate averaged 9.9 percent during the past three decades. In Japan, the central bank estimates that potential growth has fallen to about 1 percent, roughly half the pace achieved during a six-year expansion through 2007.
“The big development this year is that China has become a market in and of itself, not just a production base,” said Jian-min Jin, a senior fellow at Fujitsu Research Institute in Tokyo who previously helped craft technology policy at China’s Department of Science and Technology. “China’s attitude towards its own market has changed. The government is actively trying to build a domestic market.”
