Trade War between China and US Could Lead to Depression

The recession is over; well that is what Federal Reserve Chairman Ben Bernanke and economists believed up until last week. Last week president Obama set a new 35% tire tariff on Chinese imports which could not only prolong the recession but according to some it could cause a trade war between The United States and China and take us straight into a full blown depression. President Obama enacted a new 35% tariff on Chinese imported tyres after being pressured by the union, many experts believe this newest protectionist measure will escalate the trade issues between the two economic powerhouses causing a major trade war.

China’s minister of commerce, Chen Deming, condemned the decision, saying that it “sends the wrong signal to the world” at a time when Washington and Beijing should be co-operating to deal with the worst economic and financial crisis in decades. According to Mr. Chen this is a serious act of trade protectionism and it violates WTO rules.

In response China is taking a serious look at the imports of US poultry and vehicles and should they enact similar protectionism measures things can go from bad to worse very quickly.

Although the aim of President Obama’s new measures is to protect the domestic economy and jobs, I highly doubt this will benefit either one in the long run. By enacting this new tariff Obama is hurting the already cash strapped consumers; reducing supply of cheaper imported tires will result in price increases and hence disadvantage consumers. Consumers had determined that the Chinese products are not only acceptable, but also provide better value for the money spent.

I have to question if this move by the Obama administration was truly to help protect jobs and help Americans or was it done as a political favour? Clearly this decision will hurt the fragile American economy as well as the already cash impoverished consume.  It should also be noted that this decision was not supported by the US tire companies such as Goodyear and Cooper Tire as they understood that this new tariff will only hurt American product sales in China, I am not sure why President Obama did not understand this simple concept.

At one point in time the United States was China’s most vital trade partner, however the US has lost its status and now Europe is China’s largest trading partner. Should a trade war erupt US will have the short end of the stick, and the American economy could see a much steeper economic decline.

I do not necessarily agree with China’s labour laws or believe the Chinese have the best products, but government intervention in the free market is almost never a good idea.  It’s simply a matter of survival of the fittest, let the free market and consumers decide who provides the best value. Intervening in this process will have dangerous consequences. Obama’s protectionism measures will eventually isolate the US, potentially causing trade wars and lead the US economy to a potential depression.

Is there a potential trade war between the US and China? After last week’s move by the Obama administration I would not be surprised if the Chinese react with their own protectionism measures. In my humble opinion we still have a long while to go before this recession has ended.