U.S. Accuses China Of Illegal Auto & Parts Subsidies

September 17, 2012

China's auto industry is booming: car sales are strong, and the country's suppliers are doing bang-up business on the export front.

But the U.S. claims that China has given its auto industry unfair advantages through heavy import tariffs, artificially devalued currency, and $1 billion in shady subsidies. According to CNN, the feds are filing a formal complaint with the World Trade Organization today about item #3 on that list. 

Aiding exports

The complaint being submitted today to the WTO alleges that between 2009 and 2011, China doled out subsidies worth $1 billion, primarily to its auto parts manufacturers. 

The problem isn't the subsidies themselves or even their dollar amount. The problem, according to the feds, is that those subsidies were targeted solely to China's exporters. That's a violation of WTO rules.

The U.S. alleges that the subsidies reached a substantial number of parts exporters -- around 60% of China's total. Ultimately, those government funds allowed Chinese exporters to price their goods artificially low, which gave them an unfair advantage in the marketplace.

While the auto parts subsidies aren't solely responsible for America's $280 billion trade deficit with China, they certainly didn't help matters.

Inhibiting imports

But today's complaint isn't the only one that America has filed with the WTO. In July, the U.S. alleged that China was placing an unfair burden on imported vehicles with a new series of tariffs -- tariffs that seem targeted to American cars and SUVs.

Before last year, China slapped a 25% tax on all imported passenger vehicles. Then, in December of 2011, the country began imposing an additional tariff on vehicles with engines boasting a capacity of more than 2.5 liters. 

As we reported then, China's new tax was confusing, based not only on engine size but also the volume of vehicles imported. In the end, that meant that vehicles from companies like General Motors were subjected to additional tariffs of more than 21%, while new taxes on European models from BMW and Mercedes-Benz were between 2% and 3%.

Some argued that the new tariffs -- which expire in late 2013 -- were a retaliation against America's 35% tariff on Chinese-made tires, which debuted in 2009. That tariff reduced the number of Chinese tires imported to the U.S. by 50% and allegedly caused the loss of 100,000 jobs in China. Others insisted that the new tariffs were simply a way for China to give its homegrown companies an unfair leg up.

No matter how you slice it, though, the import tariffs were cleverly engineered to hinder sales from U.S. automakers. In less than a year, they've generated more than $3 billion in taxes on U.S.-built autos.

Artificially weak yuan

The U.S. has also attacked China for artificially devaluing its currency, the yuan. According to government officials, those manipulations have made Chinese exports cheap and affordable for importers around the globe, giving Chinese companies an unfair edge in the marketplace.

The Obama administration has declined to lodge a formal complaint against China for currency manipulation, claiming that it has made significant progress toward resolving the matter via diplomatic means. The feds will issue an update on their progress next month.

Our take

On the one hand, every country has a right to regulate its own economy and ensure the financial well-being of its citizens. We do so here in America, and it would be unfair to say that China couldn't do the same.

On the other hand, there are rules and regulations that nations agree to obey -- for example, rules and regulations set out by the WTO. No rule is iron-clad, and there's always some wiggle-room, but it appears that in these cases, China has clearly crossed the line and needs to be called out.

Does it make a difference that America's complaints to the WTO are being filed in an election year? Are they political moves designed to help the Obama campaign?

As far as the tariffs on U.S. vehicle exports to China are concerned, we'll let that one slide. China debuted that tax last December, so the Obama administration's response necessarily came during the campaign season.

Regarding subsidies for Chinese exporters, though, we're a little less forgiving. Those subsidies debuted three years ago, and the Obama administration will officially announce its new WTO complaint today, at a campaign stop in Ohio -- a state that depends heavily on the automotive industry.

It's possible that it took the feds a lot of time to make their case. But making the announcement in a key swing state less than two months before the election seems a bit...calculated.

Then again, what isn't these days?

Have an opinion about China's tactics or U.S. efforts to counter them? Drop us a line, or leave a note in the comment below.

The Car Connection
See the winners »
The Car Connection
Commenting is closed for this article
Ratings and Reviews
Rate and review your car for The Car Connection
Review your car
The Car Connection Daily Headlines
I agree to receive emails from The Car Connection. I understand that I can unsubscribe at any time. Privacy Policy.
Thank you! Please check your email for confirmation.