Are the Chinese Illegally Subsidizing Auto Exports?
Trade issues involving the United States and China which end up playing a part in U.S. presidential elections did not begin with the 2016 campaign. In late 2012, during that presidential election campaign, the Obama administration filed a complaint against China with the World Trade Organization. The complaint claims that China is providing export subsidies to its auto and auto parts industries. The subsidies include cash grants for exporting, grants for R&D, subsidies to pay interest on loans, and preferential tax treatment.
The United States estimates the value of the subsidies to be at least $1 billion between 2009 and 2011. The complaint also points out that in the years 2002 through 2011, the value of China’s exports of autos and auto parts increased more than ninefold from $7.4 billion to $69.1 billion. The United States was China’s largest market for exports of auto parts during this period. The United States is asserting that, to some degree, this growth may have been helped by subsidies. The complaint goes on to claim that these subsidies have hurt producers of automobiles and auto parts in the United States. This is a large industry in the United States, employing over 800 000 people and generating some $350 billion in sales.
While some in the labour movement applauded the move, the response from U.S. auto companies and auto parts producers was muted. One reason for this is that many U.S. producers do business in China and, in all probability, want to avoid retaliation from the Chinese government. GM, for example, has a joint venture and two wholly owned subsidiaries in China and is doing very well there. In addition, some U.S. producers benefit by purchasing cheap Chinese auto parts, so any retaliatory tariffs imposed on those imports might actually raise their costs.
More cynical observers saw the move as nothing more than political theatre. The week before the complaint was filed, the Republican presidential candidate, Mitt Romney, had accused the Obama administration of “failing American workers” by not labelling China a currency manipulator. So perhaps the complaint was in part simply another move on the presidential campaign chessboard.
1. What types of government actions might be interpreted as subsidies? Give examples.
2. How easy is it to define what would be a “Chinese company”? Is this easier or more difficult in the case of the auto industry?