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White House Hypocrisy And Trade Sanctions Against China
Wolf Richter www.testosteronepit.com
Practically every car sold in the US contains Chinese-made components. But suddenly, in the middle of a heated presidential campaign, the Obama administration decided to do something about it.
“We’re certainly looking at that,” Tim Reif, general counsel in the US Trade Representative’s office, told reporters, though he insisted that the election had nothing to do with it. Instead, it was all about “careful examination of the facts.” Earlier in 2012, as Republican candidates were bashing not only each other but also President Obama, the United Steelworkers union smelled an opportunity and began pushing the White House to take a stance against “a flood of auto parts from China.” A Department of Commerce investigation, resulting in anti-dumping or countervailing duties, or a WTO case against Chinese subsidies would do.
Political picante sauce: 188 lawmakers, many from swing states like Ohio where the auto industry is important, sent a letter to the White House, lambasting China for its “vast array of policies” that heaped unfair advantages on Chinese component manufacturers. And now, five months before the election, the White House is showing its dentures.
The force behind the epic migration of component manufacturing from the US to China, however, is the US auto industry itself—and Wall Street engineering.
Delphi, the former component division of GM, is Exhibit A. GM spun it off in 1999. In 2001, Delphi axed 11,500 workers. In 2004, it got tarred and feathered over its accounting practices. In 2005, six years after its IPO, it went bankrupt and closed 24 plants. In 2006, it closed another 21 plants. Meanwhile, GM was sourcing components elsewhere, particularly in China. In 2009, Delphi Automotive sold its chassis division to BeijingWest Industries, a joint venture of three government-owned companies—Shougang Corp, Bao’an Investment Development Co., and Beijing Fangshan State-Owned Asset Management Co. BeijingWest now develops and manufactures brake and chassis components for US and European automakers.
Visteon, Ford’s former component division, is Exhibit B. Ford spun it off in 2000. In 2009, nine years after its IPO, Visteon went bankrupt and shuttered numerous plants. Its center of gravity shifted to its Asia Pacific Corporate Office and Innovation Center in Shanghai. It consolidated its interior and electronics divisions into its Yanfeng joint ventures with Huayu Automotive Systems, a subsidiary of China’s largest automaker, Shanghai Automotive Industry Corp. (SAIC), which is owned by the Chinese government. And the building of its North American Corporate Office in Van Buren Township, Michigan, was sold earlier this year.
Germany, whose highly successful auto industry plays a disproportionate role in its export-driven economy, has seen the same migration. The latest was Kiekert AG, the largest manufacturer of automotive door-lock systems in the world. Among its customers: GM, Ford, VW, and BMW. It has plants in Germany, the Czech Republic, Great Britain, the US, Mexico, and, since 2008, China.
As with Delphi and Visteon, financial engineering played a role. Permira, a European PE firm, acquired it in 2000 and stuffed it to the gills with debt. In 2006, the game was over. Kiekert was handed to its creditors, Bluebay Asset Management, Silver Point Capital, and Morgan Stanley. In March this year, they sold it to Lingyun Group, a subsidiary of China North Industries Corporation (Norinco), a government-owned conglomerate that manufactures motorcycles, cars, trucks, machinery, weaponry, missiles, ammo.... The Bush administration had slapped it with sanctions in 2003 for selling missile-related products to Iran.
In the US, manufacturer after manufacturer followed the routine; they invested billions in China and sent millions of jobs across the Pacific. Sure, the Chinese eagerly played along and encouraged it—not only to expand their manufacturing base but also to obtain proprietary technologies that would, if the plan works out, make it a world leader in the auto industry.
So, it’s no surprise that more and more components are manufactured in China. Outsourcing and offshoring—for a myriad of reasons—have been the primary philosophy of American manufacturing for years, and it’s hypocritical for the White House to go after the Chinese five month before the election, just to gain a few union votes in swing states.
2010 was a magical year in China: 18 million new vehicles were sold. Sales had skyrocketed 33% that year and 54% in 2009. Mind-boggling. It catapulted China to the number one new-vehicle market, far ahead of the US which had never sold that many units in a year. But now, the China auto bubble is emitting a sharp hiss. Read.... A Mixed Bag Turns Very Ugly.
And here is Marin Katusa’s superb article.... The New Cold War: with China this time, and over oil.
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Is that you Bruce? Plus + for making me look...great references...
well said
I am not sure of the value of labels (capitalist, socialist, facist) but I am sure that this mess was created by the scheming Wall St. banksters in pursuit of mega profits, consequences be damned.
The directors (and shareholders) of these Western companies must be dumber than a fence post to sell out to PE firms for a short-term gain. What did they expect, that their beloved companies will just keep humming while they bask in their newly minted millions?
What benefit might be had from bashing the Chinese (or Indonesians, Koreans, et al) for seizing opportunities handed to them by the short-sighted ignorami?
They don't think about the consequences farther than that they'd rather turn their queen size bed made of $100 bills into a King sized bed
And which country has police dressed as storm troopers on the streets? Yep the US of A, not China.
Which country do the people end up with a surplus at the end of the month from their labour which they bank for the future?
It aint the US of A
It's the foolish USa that puts Wall Street profits over jobs for the middle class. China doesn not allow manufactured imports. If you want to sell there you have to manufacture there. Germany doesn't allow anyone to sell there. The U.S. needs to play tit-for-tat. It is the only winning trading strategy.
Stuck
read about Triffin's Dilemma
In the 1960s Triffin, a Belgian-American economist, observed that if the USA was to have the world's reserve currency (and all the HUGE benefits that come with that status) it would have to get that currency out into the world by IMPORTING MORE THAN IT EXPORTS!!! Thus was the manufacturing base sacrificed for the 'exorbitant privilege' of having the worlds reserve currency. We get to pay for our net imports with nothing but paper!!!! BUT we paid for it with the jobs of Ohio and Illinois and Michigan ...and so on..
Eventually the world will tire of this and once again we will become like we were before Brenton Woods, just like all other nations we will have to pay for our imports....until then any notion of tit for tat is nothing but political rhetoric. It simply is not possible. And trust me we will not give up our reserve currency status without a fight.
Another good reason for a worldwide gold standard
Attached to no country.
Of course it is. America has been pillaged by a layer of criminal elite.
Supply side, trickle down economics.
Deficits don't matter.
Wall Streets competing interests can police themselves.
There is no need for the derivatives market to be transparent.
American citizens deserve to be able to buy at the lowest prices possible, regardless of where they come from.
Here, have some cheap credit.
2 unfunded wars, and oh, by the way...everybody go shopping. How's that Guns AND butter thing working out? About as well as all those pump priming tax cuts that magically pay for themselves. Someone forgot to notice the declining tax base, I guess.
But don't worry, because money is speech and corporations are people.
I'm sure I left out a few of the highlights, but thinking about how collectively stupid we are is depressing.
It was 20 years of inflation, higher interest rates, and higher unemployment that we suffered from the "guns and butter economics" of LBJ.
We can go back to the days of Kennedy, and he had tax cuts to drive the economy. LBJ took over and he had to fund the Vietnam War and fund his Great Society. LBJ could not go back to congress and raise taxes after the recent Kennedy tax cuts, so he had the fed print the money. Inflation usually does not show up for some three years, depending on the rate of growth and the velocity of money. Nixon had to deal with inflation with "wage and price controls" and failed. Ford tried dealing with inflation with WIN buttons and failed. Carter tried dealing with inflation and eventually in his last year he got Paul Volcker in as head of the fed. Under Reagan, Volcker raised interest rates to 21.5% on the prime to knock out inflation. It was 20 years of inflation, higher interest rates, and higher unemployment that we suffered from the "guns and butter economics" of LBJ.
http://smartgirlpolitics.ning.com/profiles/blogs/explaining-guns-and-but...
How about finishing the rest of the article instead of quoting out of context? Here, let me help you out:
“From Reagan to Bush, we had another 25 years of economic growth. But alas, Bush pulls another "guns and butter economics." Bush had the Iraq war and his tax cuts all on borrowed money. This time, it is deficits and debt. Considering the history with the LBJ "guns and butter economics. We may suffer some 10 to 20 years of deficits and debt.
Relying on tax cuts as an ideology are for fools. Our country's problems were ignored. You had a housing bubble, a financial crisis, money going to Iraq, jobs going overseas, the neglect of our infrastructure, and the neglect of our future. And all Bush would say is "stay the course." You cannot, ever, run a country like that. So, it is not surprising to see where we are at. And it will take many years to fix. And so ended the 25 years of economic growth.
And perhaps the worst thing is that tax cuts was borrowed, spent, and does little for the future. The tax cuts have lost their effectiveness and we did not fix our problems.”
Regardless of "party" affiliation, Bush 2 was a freaking disaster. Obama had the chance to clean it up, somewhat, but he blew it. Now, we get Rommey as a choice. We are TOTALLY screwed, because anyone who thinks he will do anything to 'fix' this financially engineered crisis is a fool. He will be a bigger Wall St. toady than the currect muppet in the White House. If you don't think so, just look at the financial contributions pouring in. The Bankers are pumping money to Romeny at about a 7 to 1 ratio ofver Obama.
Remind me again. Under which president did the deficits explode? Which one gave us the Savings & Loan scandal, which was just a warm-up for the financial crisis we face now? Which one increased FDIC account guarantees 5 fold before the plunder began? Which one was it who had been sponsored by GE for more than 25 years before becoming President? Under who's tenure did we learn that greed was good, corporate raiders become heros in the business world? Barbarians at the gate, indeed.
Oh, and about that war. LBJ put us there, but Nixon kept us there for his 2 terms, along with his globalist henchman, Kissinger.
Thanks for confirming what every Econ 101 student used to know. A society can have guns, or a society can have butter, trying to have both leads to financial ruin.
LBJ << Nixon.
The capitalist are getting criticized by the socialist.
The sad reality is that the US are the socialists and China are the capitalists.
nope, facism driven by slave wage labor
the article itself said that the chinese government owned one of the businesses, the very definition of 'socialist' communist country. It is fascism here exploiting communism there and its plethora of expendable and dirt cheap labor.... all for an era of temporary extraordinary profit and its inevitable collapse due to unsustainability.
you are referring to which country again?if -in the US- you are referring to all fed,state,municipal govt employee fascists getting rich off the labors of a shrinking middle/working class you are a winner. fucking hypocrite
An old friend called this morning. He is 67 and still has to work- one of his sons is an incurable addict and has nearly impoverished his parents.
Anyway, this guy's daughter (33) works for a government agency. She just received a letter from her union that when she retires- set at 55- she will receive $7500 a month.
My friend is happy for his daughter but absolutlely disgusted by the sytem.
Government unions, crony capitalists, and criminal bankers.
Who is going to carry the load ?
It will all crash and burn like it should have long ago. Doesn't his daughters' retirement 'package' sound like greece?
In 22 years? What's that going to be worth in today's dollars - maybe 1,000?
They all got COLA's
Considering government workers make more in salary & benefits (on average) in their "career of public service" than the private sector does, it definately pays to be on the inside lookin out at the plebes.
Bring on the pain to these parasites say I.
It's botha them.