Market Talk

We don't see trade tensions in this recovery's recipe.

Bloggers aren’t fans of the new China tariff.

The Obama administration’s decision to impose a 35% tariff on Chinese tire imports is getting bashed in the blogosphere as observers question the timing of the move, not to mention the fact that China is one of the biggest holders of US debt.

But Obama’s decision is seen as a signal to labor unions that he wants to strictly enforce trade laws. United Steelworkers, which represents American tire workers, is seen as a major winner.

It didn’t take long for China to retaliate. It said yesterday it’s considering imposing tariffs on American exports of cars and chicken, prompting thoughts of a trade war occurring sooner rather than later.

From NY Times:

The impact of the dispute extends well beyond tires, chickens and cars. Both governments are facing domestic pressure to take a tougher stand against the other on economic issues. But the trade battle increases political tensions between the two nations even as they try to work together to revive the global economy and combat mutual security threats, like the nuclear ambitions of Iran and North Korea.

Across The Curve blogger John Jansen calls the Obama administration’s decision “ludicrous.” People shouldn’t take this issue lightly, he argues, as the reaction of foreign governments and investors should be closely monitored over the coming weeks.

“We are a debtor nation with a gargantuan need for funding,” he says. “What do we do? We take an action which antagonizes a buyer who in general blindly buys our debt.”

Most observers expected a rise in protectionism when trade volumes plunged late last year, Naked capitalism blogger Yves Smith points out. So this tariff may only increase protectionism even further.

“It is if nothing else getting interesting fast, and it certainly does not look good,” Smith says. “Protectionism is driven by the desire to protect jobs. Unemployment has not peaked in the US…so political pressure is set to intensify.”

On the bright side, both sides seem to be choosing their words carefully, gearing their views more toward pleasing their own domestic audiences as opposed to “egging the other side in some some politically combative stance,” Barron’s Bob O’Brien says.

“Nevertheless, the prospect has hurt some of the confidence in the global economy rebound, leaving the recovery trade that has been such an important factor in the equity market’s recent success at some risk,” he says.