President Barack Obama confronted China’s alleged auto parts subsidies on Sept. 17, accusing that country of unfair trade practices that “harm working men and women [in the US].”
Beijing has acknowledged strategies to support industries targeted for development, ranging from clean energy to mobile phones to autos. Companies can receive tax breaks and low-cost bank loans, energy and land. Exports accounted for about one-sixth of the $300 billion in sales by Chinese auto parts makers last year, according to research firm AlixPartners Asia. The United States was by far the biggest destination for Chinese auto parts last year, with sales rising 26 percent to $12.9 billion. Exports to the No. 2 region, Western Europe, rose by a similar margin to $7.8 billion, said Alixpartners.
“Today, my administration is launching new action against China —this one against illegal subsidies that encourage companies to ship auto parts manufacturing jobs overseas,” Obama said in a campaign speech in Ohio, the heart of auto parts manufacturing in the United States.
“Those subsidies directly harm working men and women on the assembly line in Ohio and Michigan and across the Midwest. It’s not right; it’s against the rules; and we will not let it stand,” said Obama, who has faced criticism from his Republican rival Mitt Romney over not being tough enough against China on trade.
The United States Trade Representative’s office announced a request for dispute settlement consultations at the World Trade Organization with China about auto parts. The trade representative Ron Kirk said the subsidies give an unfair advantage to Chinese auto parts exporters which compete with producers based in the U.S. and other countries.
Chinese automakers are down in the past year. China exported only about 500,000 autos last year, mostly to the Middle East, Southeast Asia and other developing markets.
But its producers of tires, aluminum wheels, radios and other components are making inroads in U.S., European and Japanese markets. They have yet to break into the top ranks of suppliers along with companies such as Delphi, Visteon or Europe’s Michelin and Bosch. At the lower end of the market, Chinese suppliers are increasing their global share, putting pressure on smaller Western competitors.
“We insist upon having a level playing field on which our world-class manufacturers can compete. Today we are continuing to make it clear to our trading partners that we will fight to support each job here at home that this sector supports,” Ambassador Kirk said.
Obama’s speech also took a swipe at Gov. Romney, accusing him of not supporting actions that the administration has taken against China trade practices.
“You can talk a good game, or you can play one—and my experience has been waking up every single day doing everything I can to give American workers a fair shot in the global economy,” Obama said.
Quoting an unnamed administration official, The New York Times reported Sept. 17 that the domestic auto parts industry lost about half of its jobs from 2001 to 2010. The official said imports of Chinese auto parts grew by seven-fold over the same time period. The official asked to remain anonymous because of White House policy against discussing a new policy before it is announced officially.
But some of the jobs losses could have been due to a shrinking economy and lower demand for autos (which has since begun to pick up). Some may have been due to automation too.
The U.S. Trade Representative’s office said it was also taking the next step in a separate World Trade Organization case it launched in June against Chinese duties on U.S. auto exports.
The USTR’s announcement came not long after China filed a complaint at the WTO Monday to challenge a new U.S. law on “countervailing duties,” or tariffs intended to combat export-promoting subsidies.
The complaint potentially affects close to 30 products that have previously been targeted by U.S. duties, a trade official familiar with the case said.
Teamsters Support UAW
The Teamsters Union joined with the UAW sentiments in supporting the Obama administration for challenging China over illegally and unfairly protecting its auto and auto parts industries through export subsidies.
“We are pleased the Obama administration is acting to stop China’s illegal subsidies,” said Teamsters General President Jim Hoffa. “President Obama is sending a strong message to China that its protectionist policies that hurt American workers must end.”
“We must fight back to keep good-paying American jobs here at home,” Hoffa said. “I’m pleased President Obama is backing up his commitment to do so with action, insisting that China play by global trading rules.”
China’s rise to the world’s fifth-largest auto and auto parts exporter since 2001, with the value of exports soaring to more than $69 billion from $7.4 billion. The United States is China’s largest export market for auto parts. China’s illegal export subsidies have been estimated at $1 billion between 2009 and 2011. The Economic Policy Institute estimates that China puts 1.6 million U.S. auto parts jobs at risk.
Trade and China have become sensitive issues for President Obama, under pressure to generate jobs, who pledged in 2010 to double exports within five years. Obama and challenger Romney have accused each other of favoring policies that would shift more U.S. jobs to China. Obama’s administration has filed a series of WTO cases challenging Chinese trade policy on autos, rare earth elements and other industries.
The Chinese government had no immediate response to the latest U.S. complaint but has defended its aid to industries such as solar power as in line with WTO free-trade rules.
The United States, China and other governments see the auto industry as an important source of higher-paid jobs and export revenue. The 2008 global crisis fueled complaints in the West that Chinese policies on a wide range of industries might be wiping out jobs abroad.
The WTO allows research grants and some other aid, but critics say China violates rules that prohibit making exports a condition of support. They say Chinese policies have encouraged auto parts manufacturers to shift production to China, hurting employment abroad.
U.S. Trade Representative Ron Kirk said in a statement announcing the WTO challenge that Chinese auto and auto parts exporters in government-designated “export bases” received at least $1 billion in subsidies from 2009 to 2011.
Employment in the U.S. auto parts sector shrank by roughly half between 2001 and 2010, while U.S. imports of auto parts from China have increased seven-fold, according to the Obama administration.
Beijing faces pressure to hold down potential job losses as export growth plunges and China’s domestic consumer demand weakens.
China’s auto sales growth fell to 3.7 percent in August, down from July’s 11 percent growth and June’s 15.8 percent rate. That reduces domestic demand for auto parts, increasing the importance of exports. Sales in China by global brands such as General Motors Co., Volkswagen AG and Toyota Motor Co. are growing faster than the overall market. That is squeezing Chinese automakers, especially smaller competitors that local leaders want to support as a source of jobs and taxes.
Beijing fired back in the auto dispute last year by imposing anti-dumping and anti-subsidy duties on imports of American-made automobiles worth some $3 billion. The White House said they covered more than 80 percent of U.S. auto exports to China and fell disproportionately on GM and Chrysler LLC because of Washington’s financial rescue of those companies following the financial crisis. The United States filed a WTO case in July challenging that move.
China and the U.S. have clashed over complaints about market barriers and subsidies for goods including autos, solar panels, tires, steel and chicken. Political pressures on both sides are worsening as demand for their goods cools, raising the threat of job losses in export industries.
The Chinese Ministry of Commerce said its latest WTO complaint centers on the U.S. Congress’s passage of a law this year that retroactively gave the Commerce Department power to impose anti-dumping duties on Chinese goods. That came after a U.S. court reversed earlier duties imposed under rules covering countries such as China and Vietnam that are deemed to be “non-market economies.”
“This practice puts Chinese enterprises in an uncertain legal environment, in violation of the relevant rules of the WTO transparency and due process,” ministry spokesman Shen Danyang said in a statement.
The ministry said U.S. measures being challenged cover 24 types of products worth $7.2 billion. It gave no details, but a statement from the WTO in Geneva said they include paper, steel, tires, magnets, chemicals, kitchen appliances, wood flooring and wind towers.
The Chinese filing requests consultations to settle the dispute, the first stage in a WTO complaint. If no resolution is found after 60 days, Beijing can ask for the case to be handed over to a WTO panel for judgment. Depending on the outcome, China might be allowed to request sanctions.
The two governments, along with other members of the Group of 20 major rich and emerging economies, have pledged to avoid taking steps that might hamper trade and global growth. Despite that, they have traded accusations they are improperly subsidizing a range of industries or shielding them from foreign competition in violation of WTO commitments.