China, U.S. At Odds Over Tariffs

A possible trade war is brewing between the U.S. and China after the two countries imposed tit-for-tat tariffs on each other.

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RENEE MONTAGNE, host:

There's been some panic this week about a possible trade war between the U.S. and China. Late last week, President Obama announced that the U.S. will now impose a 35 percent tariff on tires imported from China. China responded with its own threat of tariffs. By Monday morning, many were warning of a possible global trade war that could send the economy back into freefall. Today things don't seem quite that dire. Adam Davidson with NPR's Planet Money team has been following the ups and downs and joins us.

Good morning.

ADAM DAVIDSON: Good morning, Renee.

MONTAGNE: So Adam, quite a dramatic week in the world of global trade. How many tires does the U.S. import from China? I mean, it wouldn't seem to be that many.

DAVIDSON: Yes, that's right. We import around, I think, around $2 billion of tires from China every year and that might sound like a large number, but really when you look at the overall U.S.-China trade and overall global trade, it's not even a drop in the bucket. I mean it's just about nothing. Unless you happen to work in the tire industry or you're planning on buying tires soon, this isn't that big a deal. The issue here is not an economic issue. It's a symbolic issue.

MONTAGNE: So that's where the panic came from?

DAVIDSON: Exactly. I mean there's been a lot of talk about a historical fear for the last year. Basically before the Great Depression and certainly before World War I, the world looked a lot like now, lots of goods trading all over the world rather freely and the general view is that increased prosperity; that made most countries involved better off.

Then the Great Depression came and countries all over the world panicked. They increased tariffs on all sorts of goods. Global trade froze. And I think a lot of people have been looking at the situation over the last year and saying, hey, this looks kind of familiar. I bet people all over the world, politicians, are going to start raising tariffs and shutting down world trade. And this was a move that people thought, oh my goodness, maybe it's starting.

MONTAGNE: Yeah, that sounds pretty scary. So I mean why in a way has the panic gone away?

DAVIDSON: I think, first off, China calmed everyone down. They did respond with a lot of angry words, but relatively mild action. They threatened to impose tariffs of their own on chicken feet exports from the U.S. to China, which turns out to be an import...

MONTAGNE: Which worried the chicken feet exporters?

DAVIDSON: Exactly. We have actually have a chicken foot grower on NPR's Planet Money podcast today talking about that concern, but China only put this as a threat: We're going to study the issue. We're not going to actually impose those tariffs anytime soon. And what became clear as we went into the week is that China certainly knows they desperately need trade with the U.S. They cannot afford a trade war.

And when you look at President Obama's economics team, Secretary of the Treasury Geithner, advisors Larry Summers, Christina Romer, Austan Goolsbee, these are committed free traders. These are not people who are likely to encourage the president to go in the direction of trade war.

MONTAGNE: So is it all over then?

DAVIDSON: The president is walking a bit of a tightrope here between some interests in the U.S., particularly union interests who are saying, hey pal, we got you elected, you've got to give us tariffs, and they want this to spread beyond tires to steel and automobiles and other areas; and a global world, particularly China, saying do not do that because if you do that, you could make everything worse for everybody.

And we'll certainly see that play out next week as the leaders of the 20 largest economies in the world come to Pittsburgh to the G-20 Summit hosted by the president. When it comes to trade issues, much of his presidency will be defined by this tension between domestic interests and international interests.

MONTAGNE: NPR's Adam Davidson in New York, thanks very much.

DAVIDSON: Thank you, Renee.

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