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Auto and Auto Parts: China and US Are Complimentary

Sep 25 , 2012
  • He Weiwen

    Senior Fellow, Center for China and Globalization

US President Barack Obama launched on September 17 a case at the World Trade Organization accusing China of offering at least $1 billion in subsidies to auto and auto parts industries from 2009-2011. The United States Trade Representative’s (USTR) case asserted that China’s export subsidies “hurt auto and auto parts manufacturers and workers in the United States through lost sales and lost market shares in U.S. and world markets.”

It is not a coincidence that the President made this offensive in Ohio, a key state for auto and auto parts manufacturing, and also a key swing state in the presidential campaign.

According to the New York Times’ electoral vote tracker, in early September, Obama had secured the firm support of 185 electoral votes and 52 votes leaning Democratic, for a total of 237 electoral votes, leaving only 33 votes to secure the election. Among the swing states, Ohio has 18 electorate votes. Hence, Obama certainly needs Ohio, where roughly 54,000 jobs are in auto and auto parts manufacturing.

During the same period, US imports of auto and auto parts worldwide increased from $215.9 billion to $227.3 billion, up 5.3%, or a net increase of $11.4 billion. The largest increase came from Mexico, up from $38.2 billion to $59.9 billion, or a net increase of $21.7 billion – almost four times that of China. Mexico’s share of total US imports rose from 17.7% to 26.3%, while China accounted for only 1.7% and 3.9% respectively. Obviously, China is the wrong target.

US exports of auto and auto parts grew much faster. During the same period, US exports increased from $88.3 billion to $120.5 billion, up 36.5% or a net increase of $32.2 billion, $10.5 billion more than the imports increased. US exports to China increased by $5.6 billion, $600 million more than its imports from China. Again, the US gained both in global and Chinese markets.

China auto and auto parts did not cost American autoworkers jobs. The US Department of Labor shows that the auto and auto parts manufacturing sector had an employment of 789,500 in July 2012, compared to 721,700 a year ago, a rise of 9.4%! Growths rate much faster than the whole manufacturing sector (up 1.9%) and all non-agricultural manufacturing (up 1.4%).

Ironically, Eaton Industries, a conglomerate based in Cleveland, Ohio, which also manufactures auto parts and systems, reported record sales and profits in 2011, partly because of exports to Asian markets. Remember, Eaton has 18 manufacturing facilities in China!

China also helped General Motors in 2010 when it declared Chapter 11 bankruptcy protection at home. That year, General Motors had record sales in China, breaking 2 million units, followed by a new record in 2011 with market sales in China topping 2.5 million. Ford Motors, while adding manufacturing facilities in the US and employing 2000 workers, inaugurated two major assembling plants in China last month, with a goal of doubling its China capacity by 2016.

China has provided enormous markets for US auto and auto parts manufacturers. Meanwhile, China auto parts in the US helped automakers cut costs, thus enhancing their competiveness in world markets.

The two-way trade and investment in auto and auto parts between China and the US is an excellent case of complimentary business, benefiting both nations.

The USTR’s definition of “export subsidies” is obscure. Bloomberg reported that the US has provided $40 billion in recent years to its auto industry alone.

Earlier this year, Nissan decided to launch a new auto plant in Tennessee, because the federal government had promised a $1.4 billion loan, covering 80% of Nissan’s total investment or $1.7 billion.

Charging China will do no good for the US auto and auto parts makers, much less for the US economy as a whole, it is only natural that Obama’s claims were met with criticism in US media. The Wall Street Journal said what Americans need is a good president who could convince people of the benefits from trade. Bloomberg said both Barack Obama and Mitt Romney had incorrectly explained US-China trade relations.

The top priority before both China and the US auto and auto parts makers is further comprehensive cooperation in developing a new generation of vehicles with hybrid fuel technology, new materials and lower carbon footprints. By focusing on cooperation, both China and the US could enhance their respective positions in the global value chain of this cutting edge generation, and thus continue expanding domestic and global markets. We need more teamwork, not charges.

He Weiwen is co-director of the China-US/EU Study Center at the China Association of International Trade.

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