TRADE WARS : TRADING BARBS WITH CHINA / THE WALL STREET JOURNAL REVIEW & OUTLOOK ( VERY HIGHLY RECOMMENDED READING )

REVIEW & OUTLOOK

FEBRUARY 10, 2010.

Trading Barbs with China

Of tires, chickens and unintended consequences.

President Obama pledged during his State of the Union address to double America's exports over the next five years. Just don't mention that to chicken farmers, who are now bumping up against an unintended consequence of Mr. Obama's trade policy.

China's Ministry of Commerce on Friday proposed antidumping duties of between 43% and 106% on imports of American poultry. Although Beijing claims the U.S. illegally sells chicken feet in China at a price less than the cost of production, this is really a political case. The step is widely viewed as retaliation for the 35% "safeguard" tariffs Mr. Obama imposed on Chinese tires in September. China launched its antidumping investigation days after the tire tariffs were announced.

The domestic pressure for Beijing to act was already high in light of many other cases of U.S. protectionism. Chinese poultry producers have long been angry with the U.S. over barriers to cooked-chicken imports inspired by spurious safety concerns, and they filed a suit at the World Trade Organization. Pressure from other quarters is mounting as Washington piles up antidumping duties on other Chinese products, whether it's $2.6 billion worth of steel pipe or, also last week, $33 million of ribbon used for wrapping gifts.

Seen in this light, it hardly matters that the technical merits of China's chicken case are questionable. Far from dumping, U.S. companies are able to sell chicken feet at a dramatic mark-up in China, where they're a delicacy, as compared to the U.S., where most consumers spurn them. It seems more likely that Beijing tinkered with its estimates of the cost of producing chicken feet to generate a sufficiently punitive duty rate. U.S. poultry exports worth at least $677 million as of 2008 are caught in the crossfire of a bigger trans-Pacific trade spat.

These duties will be as bad for Chinese consumers who face higher prices on imports as they are for U.S. exporters. Beijing took a far smarter course last week in a different trade dispute: It sued the European Union at the WTO contesting the EU's 16.5% antidumping duties on Chinese shoes. China has a good chance to prevail, and if it does it could force Brussels to re-evaluate how it weighs dumping allegations. That would be good both for Chinese shoe manufacturers and European consumers.

As foolish as China's chicken duties are, they at least offer a useful lesson in the U.S. Mr. Obama has often highlighted the virtues of "trade enforcement" such as antidumping cases, including in his State of the Union. The problem is that the U.S. isn't the only country that can play this game and the danger of tit-for-tat retaliation is real. Measures meant to burn China's tire industry have ended up roasting American chicken producers.

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