Tires, chicken, and US-China trade

Nicole Wachs explores the potentially explosive US-China tariff fight

Financial press was chock-full of headlines Monday about a simmering trade fight between the U.S. and China and its potentially deadly implications for both countries as they fight their way back out of recession.

What happened? That part’s simple enough. Obama slapped a 35% tariff on Chinese-made tires, as a bone thrown to US manufacturers of same. Then China turned around and announced tariffs on US-made chicken and car parts. They also lost no time in submitting a complaint to the World Trade Organization (WTO), which in light of the upcoming G8 summit could overshadow all other topics.

That part’s easy; it’s the future waves that boggle your mind. CNBC.com points out that even this relatively minor friction rattled markets, from stocks to the Treasury market, where China has been a huge buyer of US-issued government debt.

The New York Times report goes even deeper, pointing out the many surprising implications of these moves: possible pull-outs by multi-nationals from China manufacturing, China threatening the dollar further, the U.S. losing more agricultural exports, one of the few areas of trade surplus internationally.

Seeking Alpha’s Jeff Nielsen paints a positively operatic picture of the two countries’ intrigues against each other, pointing the finger at China’s recent decision to promote gold and silver investment to their citizens versus U.S. dollars or Treasuries.

Who’s right we’ll never know – the more pointed question to traders is, which companies might win or lose in the fight? Tire manufacturers are the first to come to mind to many of these writers: Goodyear (GT) and Cooper Tire & Rubber (CTB) got mentions in a Boston Globe piece as potential beneficiaries, although both of these US-based companies manufacture to some degree in China. (The irony!)

On the contrarian side, you could find Chinese tire manufacturers at Made-in-China, an international supplier site, or this Research and Markets report on the Chinese automotive tire industry.

As for chickens, this Marketwatch article on US-chix producers lists many of the biggest usual suspects, including Tyson Foods (TSN), Sanderson (SAFM) and Pilgrim’s Pride (PGPDQ).

What about Chinese views on the subject? Chinalyst, an English-language Chinese blog, doesn’t think a trade war will benefit anyone. Sina’s daily reader poll Monday was devoted to this question, and (as of this writing) 55% of English readers wanted to see China stand tough.

Where do you stand? Is this just jawing and posturing by politicians of both countries, or could a true trade war erupt over this?


Regards,
--Nicole Wachs
Director of Education
All-Star Commentator


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