The trade war between America and China rumbles on, confused somewhat by the recent actions which the US has taken over the involvement of Huawei in technologically-sensitive areas of the economy. The use of tariffs to protect industries involved in areas of national security can be justified by WTO rules. President Trump has been free in his use of this justification He has used it to justify tariffs on steel since it is an important product for the defence industries. His use of the argument that he has to protect strategic industries suffers when he simultaneously talks of the need to reduce the “BAD” US balance of payments deficit, which, according to him is the fault of foreign countries and not due to a lack of competitiveness among US industries.
Another more long-term example was highlighted by The Economist in a recent article about bicycle exports from China to America. (The same article also provides an insight into of the workings of global supply chains.)
In the 1970s, the vast majority of bicycles sold in the USA were made in the USA – around 15 million. By the late 1980s, US producers were suffering from Chinese-made bicycles entering the American market very cheaply and then, suffering even more when the Chinese producers further cut their already-low prices to drive out domestic US production – an example of dumping. Remaining US producers sought anti-dumping tariffs but the US government was more interested in good relations with China and did not act.
Some bicycles are still made by a US firm – BCA, the Bicycle Corporation of America, which was launched when Walmart decided to operate a Buy-American campaign. However BCA is now a subsidiary of a Chinese firm, Kent, (previously a US family firm which was half bought by a Chinese firm) and, furthermore, BCA only assembles in the USA, it buys its parts from a Kent factory in China.
Last September bicycle prices were raised by 10% tariffs and a further 15% tariff was imposed in May, hitting US consumers.
What right did President Trump have to do this? He used a US government power – section 301 – which allows the US government to protect intellectual property. How does this apply to Chinese bicycles?