A Trade Storm Is Brewing

From the Washington Times:


Top Chinese diplomats in Washington on Tuesday warned against "trade wars," as President Obama faces a looming decision on whether to erect barriers against the import of Chinese tires.

"Trade wars between China and the United States is the last thing that our two countries need right now," said Xie Feng, deputy chief of mission for the Chinese Embassy in Washington.

Mr. Xie and Wu Jianmin, one of the top-ranking diplomats and foreign policy experts within the Chinese government, briefed reporters at the imposing year-old Chinese Embassy in advance of the upcoming summit of the world's largest economies in Pittsburgh later this month.

While Mr. Wu downplayed "trade frictions" between the United States and China, which he said the two countries have "all the time," he did emphasize that the relationship between the world's greatest superpower and one of its most prominent rising powers is a delicate one.

"We have to handle our relationship with care," said Mr. Wu, a former ambassador to France who currently serves on the foreign policy advisory group at China's Foreign Ministry.
Both Mr. Xie and Mr. Wu said it is important for the United States and China to resist growing protectionist pressures and to continue to advance trade liberalization.

"A very important message that China and the United States should give to the outside world is that we are all against protectionism," Mr. Xie said. "China and the United States not only have every reason but also have the obligation to show to the world with our concrete actions that we are doing exactly . . . that."

The Obama administration currently is facing a decision on whether to impose tariffs against Chinese tires, following the recommendation of the U.S. International Trade Commission. The president has until Sept. 17 to decide.

The United Steelworkers of America, the union that represents many of the 8,000 American workers who it says have lost or will lose their jobs because of competition from Chinese tire production, called Tuesday for the White House to go further than the ITC recommendation and impose a tariff of higher than 55 percent.

From DNA:

Some economists argue that fears about China's "de-dollarisation" strategy are overstated. "The attention paid to China's worries about the US dollar is overdone," says RBS economist Ben Simpfendorfer. Although Chinese officials have in public appeared to challenge the status of the US dollar, internal debates among Chinese officials and academics "is far more diverse than these public statements imply."
But Morgan Stanley's Asia chairman Stephen Roach has, in a recent book, flagged the risk of a Chinese boycott of US Treasury auctions if - as he believes will happen - the US Congress passes protectionist legislation aimed at imports from China.
Such an eventuality, he warns, would "trigger a full--blown crisis in the US dollar" and lead to a spike in real long-term US interest rates. "That would exact a severe toll on a bruised and battered US economy, to say nothing of the rest of the world," writes Roach.

It is starting to look like 1930 again.
Protectionism is rising in the United States at an alarming rate.
The "Buy American" campaign is heating up with the help of union backing.
Proposing high tariffs on everything from steel to tires is in the news.
As Stephen Roach points out, this sort of tactic, which is often used by the left wing arm of the Democratic party could have severe implications. If the US can not sell its bonds without adjusting the yield upward, the debt spirals out of control and so do interest rates. In fact, other countries might not be willing to buy debt in US dollars, only in their own currencies, like the Yen & Yuan.
This would then be the trigger for the next wave down in the Great Recession as much of world trade would virtually grind to a halt.