G-20 leaders are gathering in Pittsburgh this week to address the global financial crisis, climate control, and whether it is time for countries such as Japan and Germany to pull back on their stimulus dollars.
Other countries such as Great Britain are hesitant to withdraw stimulus dollars in hopes of avoiding further catastrophic job losses.
One theme of the meeting is “global cooperation.” However, as the U.S. imposes a 35% tariff on Chinese tires, global cooperation may turn out to be a title only.
In response, China threatened a ban on U.S. imported chickens and auto parts. According to ABC News, China even filed a formal complaint with the World Trade Organization.
ABC News reports President Hu has stated, “The Chinese side is willing to work with the United States to keep our bilateral relationship firmly along the right course and deepen our pragmatic cooperation in a wide range of areas.”
As China’s political and economic clout grows, the timing of the tariff seems strangely odd. Some suggest the move indicates the “concern” the U.S. has on China’s growing financial strength. For years, most U.S. citizens have viewed China as a major threat to the U.S. from stealing jobs to deliberately pegging its currency to the U.S. dollar.
But according to Foreign Affairs, China is not stealing jobs or undercutting U.S. industries. The article says “almost 60% of Chinese exports to the United States are produced by firms owned by foreign companies, many of them American.”
The newly imposed tariff was spurred by American steel workers. Forbes reports that the union filed a petition in April, urging President Obama to be tough with China. The union claims China has violated clause 421, which “allows the United States and other WTO members to restrict imports from China in response to a surge that is harming or threatening to harm U.S. industry.”
The steelworkers assert that China has lured U.S. tire manufacturers to its country by promising cheap labor.
President Obama doesn’t believe the tariff will spark a trade war. He’s quoted in Bloomberg as saying, “We’re not going to see a trade war.” Bloomberg also says that Yao Jian, a Ministry of Commerce spokesperson, stated, “It’s not fair if the U.S. only cares about its own employment and not China’s growth.”
What does the U.S.’s tire industry think of the tariff? Surprisingly enough, they are deeply disappointed by the president’s actions. In fact, Tire Review (the industry’s trade journal) said the move is politically motivated. It also cites a study done by economics professor Thomas Prusa of Rutgers University who says a “punitive tariff on Chinese tires would lead to a loss of at least 25,000 U.S. jobs" among tire distributors and retail tire techs.
But analyst Adam Lass of WaveStrength Option Weekly suggests the tariff doesn’t matter much. Lass says, “The tariff is a bit of a tempest in a tea pot… or perhaps a Kabuki Dance? We actually cut off the introduction of Chinese tires to the American Market months ago. So now Washington feels free to pile on knowing full well that their actions have no real effect.”
Adam specializes in uncovering easy-to-do, low-cost option trades on a variety of companies. In fact, in one trade he led readers to a 600%+ gain on Ford Motor Company. You can learn more about WaveStrength Options Weekly here.
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