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**KlaraNovikoffaZ** · 09-13-2009, 08:48 PM

The problem is, I don't see the US as being able to necessarily approach this from a position of strength right now.

Actually, we might come out ahead or at least stop China from considering that rare-earth metal export ban they've toyed around with.

The situation right now if we implement a huge import tariff on Chinese-made tires [by companies owned in the US], is that tire companies who offshored their work to China just lost their economic incentive to produce in China.

Will they leave China? Only if they sense that the tariff is long term. Then they will probably move the production back to Mexico (where it was before), where they're protected under the NAFTA block which China has to compete with.

Tires are a cyclical consumer good (buying goes up over the summer when more tires burst, and consumers have to keep buying them periodically).

Demand is also quite inelastic relative to price, because you cannot drive without tires.

This means even if tires become expensive, people will continue to buy them because they have no other choice. This is probably the biggest leverage the United States has over China, because in this case, we actually CAN afford to pull tire production out of China by slapping on tariffs.

Will that mean China retaliates? Probably. But we have other commodities China requires to survive that we can place export taxes on... like scrap metal and soy.

We have tried for 2 decades now to get China to release their currency so that the balance of trade flows with China is more fair so Chinese prices don't subsidize exporting for the sake of exporting, but that's not how they roll.

We've already seen how incredibly hard it is for non-Chinese firms to market goods directly to Chinese consumers and how incredibly selective they are in who they allow to serve the Chinese market.

We can't keep going on this export imbalance forever. Something has got to give. Might as well stick some pressure on China now while we have some leverage left.

09-13-2009, 08:48 PM	#10
KlaraNovikoffaZ Join Date Oct 2005 Location USA Posts 384 Senior Member	The problem is, I don't see the US as being able to necessarily approach this from a position of strength right now. Actually, we might come out ahead or at least stop China from considering that rare-earth metal export ban they've toyed around with. The situation right now if we implement a huge import tariff on Chinese-made tires [by companies owned in the US], is that tire companies who offshored their work to China just lost their economic incentive to produce in China. Will they leave China? Only if they sense that the tariff is long term. Then they will probably move the production back to Mexico (where it was before), where they're protected under the NAFTA block which China has to compete with. Tires are a cyclical consumer good (buying goes up over the summer when more tires burst, and consumers have to keep buying them periodically). Demand is also quite inelastic relative to price, because you cannot drive without tires. This means even if tires become expensive, people will continue to buy them because they have no other choice. This is probably the biggest leverage the United States has over China, because in this case, we actually CAN afford to pull tire production out of China by slapping on tariffs. Will that mean China retaliates? Probably. But we have other commodities China requires to survive that we can place export taxes on... like scrap metal and soy. We have tried for 2 decades now to get China to release their currency so that the balance of trade flows with China is more fair so Chinese prices don't subsidize exporting for the sake of exporting, but that's not how they roll. We've already seen how incredibly hard it is for non-Chinese firms to market goods directly to Chinese consumers and how incredibly selective they are in who they allow to serve the Chinese market. We can't keep going on this export imbalance forever. Something has got to give. Might as well stick some pressure on China now while we have some leverage left.
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