The U.S. and China edged closer to a potentially catastrophic trade war this week. The opening salvos on this path to mutually assured destruction? Chinese tires we don't need and U.S. chicken parts we don't eat.
Late last Friday, the Obama administration announced its decision to impose higher tariffs for three years on Chinese tires. The president seemingly tried to sneak this tidbit past the American public ahead of the weekend. Nevertheless, ever-alert Wall Street traders jumped on this not insignificant shot at one of America's largest trading partners, bidding up shares of U.S. tire makers Goodyear and Cooper by as much as 8% and 12%, respectively, during Monday's trading session.
There is already a 4% tariff on all tire imports, but the president's new import tax, which takes effect Sept. 26, cranks that amount up to 35% in the first year, 30% in year two, and 25% in the third year. So obviously he's not messing around.
Or is he? Seems to us all this heated rhetoric is raising pulse rates on both side of the Pacific but not addressing any real problems in the U.S. tire industry.
China's market share in the U.S. grew from 4.7% of tires purchased in 2004 to 16.7% in 2008, according to the U.S. Trade Representative's office. And while those figures look fairly ominous -- especially to the United Steelworkers union that pressed the president to act when the union raised the issue in April -- it's really a case of white walls and oranges.
The Chinese imports are primarily low-end, bargain basement-type tires, an area that U.S. tire manufacturers generally don't joyride in. Most of the bounce in American tire stocks, therefore, comes from tire manufacturers' newfound ability to raise prices in the face of reduced competition.
"Our products are principally at the higher-value, branded segments of the market," said Keith Price, spokesman for Goodyear.
No matter. The Obama administration's decision prompted the Chinese government to file a complaint with the World Trade Organization on Monday, and on Sunday, China said it may seek retribution by raising levies on American chicken products in China.
But like America raising tariffs on low-end Chinese tires, a Chinese chicken tax hurts only Chinese consumers. Last year, American poultry sellers shipped $854.3 million worth of chicken meat to China and Hong Kong, according to a report in The New York Times
. Industry executives say the exports to China were particularly profitable because half of the chicken parts sold to China are wings and feet, which are worth only a few cents a pound in the U.S., but can be sold for 60 to 80 cents a pound in China.
Michael D. Cockrell, chief financial officer of poultry producer Sanderson Farms, told the Times that so far Chinese importers haven't stopped ordering American chicken feet and wings.
"It gives us a little bit of optimism that we will get over this," said Cockrell.
We hope so, too. This whole game of chicken just makes us sick, and, to be fair, tired.
Dumb-o-meter score: 85 -- Why don't we split the difference and raise tariffs on rubber chickens? Seems like that would be fair to everybody.