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Thu September 20, 2012
Planet Money

Are Chinese Exporters Cheating?

Originally published on Mon September 24, 2012 1:35 pm

The Obama administration filed a lawsuit with the World Trade Organization this week alleging that China is illegally subsidizing its auto industry.

The US says China provides cheap loans and grants and other incentives to their car industry, and that these favors go to companies who are already successful exporters. That, says US Trade Representative Ron Kirk, is unfair.

"There are a set of rules and everybody's got to play by those rules, " says Kirk.

But wait a minute, didn't the US bail out our own auto industry? What's the difference?

Gary Hufbauer of the Peterson Institute says, for one, the alleged Chinese subsidies weren't done in a period of distress like our bailout.

"The Chinese have been highly successful, they're the top auto producer in the world," says Hufbauer.

Despite that difference, he says for most people:

"It looks pretty much like a duck. Duck walks, duck quacks, same duck."

And yet, the US auto bailout is not being challenged at the WTO. A national industry rescue rarely is.

According to Ambassador Kirk, that's because "everybody understands that was a short term issue and the auto industry is paying that money back."

Our bailout was not tied to export performance, as the US alleges China's subsidies are--a clear WTO violation. Still, it may have looked unfair to China. About a year ago, China slapped a tax on US car imports claiming that our cars had benefited from subsidies. This was, not coincidentally, says the US, not long after we'd put up a tariff that affected Chinese tires. The US is challenging this tax at the WTO.

You might think from this back and forth that these two just can't get along, but actually-- most of the time — trade goes smoothly.

"I know some people think 'Oh boy the US and China just sue each other all the time,' but 90 percent of our trade goes off every day without a hitch," says Kirk.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

AUDIE CORNISH, HOST:

When it comes to trade between China and the U.S., one complaint comes up a lot: China is cheating, rigging the game in favor of its own exports. Just this week, the Obama administration filed a lawsuit with the World Trade Organization arguing that China is illegally subsidizing its auto industry. But the complaint comes not that long after the U.S. bailed out its own auto industry. What's the difference? We put that question to NPR's Zoe Chace.

ZOE CHACE, BYLINE: To understand what the U.S. is so mad about, you've got to lose the idea that trade means sharing stuff and a handshake.

AMBASSADOR RON KIRK: Trade is not that different than any other competition, except for ours is economic.

CHACE: That's U.S. Ambassador Ron Kirk, sports fan and President Obama's point man on international trade.

KIRK: There are a set of rules and everybody's got to play by those rules if it's going to be a fair competition.

CHACE: The U.S. is saying that China provides cheap loans and grants and other incentives to their car industry and that these presents, these favors, are for companies who are successful exporters. And that is totally unfair.

KIRK: Is completely contra to the rules that we all agreed on within the WTO.

GARY HUFBAUER: Not to be immodest, but I actually wrote that language back in the '70s.

CHACE: This is Gary Hufbauer. He used to work at Treasury 30 years ago when some of these rules governing global trade were still being written. Today, he's the global trade guy at the Peterson Institute in Washington. And he says, a subsidy does not necessarily mean you're a cheater.

HUFBAUER: The U.S. gave a tremendous amount of subsidies during the Great Recession of 2008, 2009. And a good portion of those subsidies went to our auto industry.

CHACE: Right. The bailout. The U.S. government gave U.S. automakers cheap loans and bought shares in the companies. We still own almost 30 percent of General Motors. And, you know, when it comes to subsidies, you'd think the modus operandi is to be sneaky. Pull a fast one. But...

JENNIFER GRANHOLM: He organized the rescue. He made the tough calls and he saved the American auto industry.

CHACE: It seemed almost every speaker at the Democratic convention was bragging about the auto bailout. That was former Michigan governor, Jennifer Granholm. And given that the U.S. loaned $50 billion to GM and China is alleged to have given out at least a billion dollars in auto subsidies, well, is it a double standard?

HUFBAUER: The Chinese have been highly successful. They're now the largest auto producing country in the world.

CHACE: China's number one since our bailout of our auto industry, so they seem fine. Hufbauer also points out that the alleged Chinese subsidies weren't done in a period of distress, like our bailout was. But...

HUFBAUER: You know, for most people, it looks pretty much a like duck, you know. Duck walks, duck quacks. Same duck.

CHACE: Let's be very clear. The U.S. auto bailout is not being challenged at the WTO. And that's because, as Ambassador Kirk says...

KIRK: Everyone understands that was a short-term issue and in this case, the auto industry's paying that money back.

CHACE: Also, our bailout was not tied to export performance as the U.S. alleges China's subsidies are. It may have looked unfair to China though. Because about a year ago, China slapped a tax on U.S. car imports, claiming that our cars had benefited from subsidies. The U.S. is challenging this tax at the WTO. You might think from this back and forth that these two just can't get along. Each thinks the other is gaming the system.

KIRK: I know some people think, oh, boy, the U.S. and China just sue each other all the time. But, 90 percent of our trade goes off every day without a hitch.

CHACE: Right. The U.S. and China. Sometimes they face off, but usually they're on the same side. Keep that in mind when keeping score. Zoe Chace, NPR News. Transcript provided by NPR, Copyright National Public Radio.