Microeconomics Assignment:
What do you think about the below? Use your knowledge of the material learned in this course to analyze this case from an economic angle. Your written work should be one page long and single spaced.
This case study consists of two articles and cover 1 chapter from the book.
Source 1: Article-
China slaps duties on U.S.-made autos
By Chris Isidore @CNNMoney December 14, 2011: 2:16 PM ET
The Cadillac CTS on the Great Wall of China. While GM is the No. 1 automaker in China, exports from the U.S., such as this CTS, are less than 1% of its sales there.
NEW YORK (CNNMoney) — China slapped duties on U.S.-made cars Wednesday, an action that could imperil billions in sales by Detroit automakers but which will leave most of their sales in the country unaffected.
The Commerce Ministry of China announced the duties on U.S.-made sedans and SUVs, raising the cost of those vehicles to Chinese buyers by between 2% and 21.5%. The new tariffs start Thursday and will last for 2 years.
The ministry cited “anti-dumping and anti-subsidy regulations” as the reason for the action.
But the action comes amid rising trade tensions between the United States and China, the world’s two largest economies who have become key trading partners as well.
The U.S. Trade Representative’s office, the Obama administration’s advocate in trade disputes, issued a statement that it was “very disappointed in this action by China today.” It said it would consult with Congress and U.S. automakers about how best to respond.
China shifts gears from inflation to growth
The move by Beijing’s government came two days after the Trade Representative issued a report to Congress that criticized what it said was China’s “industrial policies that rely on trade-distorting government actions to promote or protect China’s state-owned enterprises and domestic industries.”
The action also came ahead of a meeting of the World Trade Organization’s dispute settlement body on Monday at which the Obama administration intends to challenge Chinese limits on chickens imported from the United States.
General Motors (GM, Fortune 500), along with its Chinese joint venture partners, is the leading automaker in China, and the market has become crucially important to the company. Through November, GM sold 2.4 million vehicles in China, up 8% from a year earlier, and 4% ahead of its U.S. sales in the same period. Its revenue in China came to $22.9 billion in the first three quarters of the year.
But GM said that its U.S. exports into China represent less than 0.5% of its overall Chinese sales.
“To better serve our customers by providing vehicles tailored for Chinese buyers and to make them more affordable, GM generally builds where we sell,” said a statement from the company Wednesday. It said the company is working with its Chinese partners and the authorities to understand the full implication of the duties and seek a solution.
Ford Motor (F, Fortune 500) said that none of the 470,152 cars it sold in China so far this year came from U.S. plants. Chinese sales figures for privately held Chrysler Group were not immediately available.
While U.S. imports are a fraction of overall auto sales, the growing middle class has made China the world’s largest market for auto sales and created some significant export opportunities.
U.S. vehicle exports to China were worth $4.2 billion in the first 10 months of this year, according to the Census Bureau, making it the third largest market for U.S. vehicle exports behind only Canada and Germany. Those exports are up 50% from the same period of last year, and exports have been growing at roughly that annual rate since 2004.
But experts in the field said they don’t expect the import duties and lost sales to be a significant blow to the U.S. automakers, since most of their sales there won’t be affected. They say it’s likely a move by the Chinese to try to block the U.S. from filing any additional sanctions against its own exports here.
“They’re basically saying if the U.S. tries to put tariffs on imported goods from China, they’ll retaliate,” said Rebecca Lindland, director of research at IHS Automotive.
Peter Morici, economics professor at the University of Maryland and a vocal critic of U.S. trade policies, said the move is part of a trend of China becoming even more protectionist as it focuses more on growth rather than fighting inflation.
He pointed to the recent decline in the value of the Chinese yuan versus the dollar, which raises the price of U.S. goods there and lowers the price of Chinese exports. Earlier this year, after pressure from developed economies, China allowed the yuan to rise in value.
“They see a recession coming and they’re getting tough on American imports,” he said. “We can expect more of it.”
And he said even if the U.S. auto exports to China are small compared to the sales there, the United States should take action to oppose it.
“There’s a reason we export so little — they let so little in,” he said. “This is what we should be selling there to balance the trade.”
He said this is also part of the effort by China to force U.S. companies doing business there to turn over more of their technology to their Chinese partners.
“They’re showing GM that Beijing is more powerful in their lives than Washington,” he said.
Shares of GM and Ford were both off 2% in midday trading.
First Published: December 14, 2011: 2:10 PM ET
Source 2: Article-
U.S. vs. China: The trade battles
By Chris Isidore @CNNMoney March 13, 2012: 4:03 PM ET
China’s limits on exports of rare earths minerals Tuesday became the latest trade dispute between China and the United States.
NEW YORK (CNNMoney) — China and the United States are the world’s largest economies and, by some measures, each other’s most important trading partners. But it’s a rocky marriage.
A dispute over rare earth minerals came into the spotlight Tuesday, as President Obama announced that the United States, Japan and Western European countries would file a trade complaint against China.
But it’s only the latest in a series of pending trade disputes between the United States and China that experts say won’t be resolved any time soon. Any one of the disputes could damage the economies of both countries as well as the relationship between them.
Here’s a rundown of the most important trade disputes.
Rare earths
The United States and other Western economies charge that China is putting unfair restrictions on the exports of rare earths, elements crucial to the making of numerous high-tech products, to give its own manufacturers an edge. Rare earths are also critical to national defense — used in products from tanks and ships to radar systems and night vision goggles — as well as green-energy products such as wind turbines and batteries for electric vehicles.
Rare earth suit is as much about national security as it is business
China produces about 97% of all rare earths, although one U.S. company, Molycorp (MCP), is starting production in the United States. But even when Molycorp reaches full production later this year, it will be producing only a small fraction of the output from China.
“We want our companies building those products right here in America,” said Obama on Tuesday. “But to do that, American manufacturers need to have access to rare earth materials — which China supplies.” He said China’s rare earth restrictions go against the World Trade Organization rules that China has agreed to.
China denies the charges, saying its rules are defensible on grounds of environmental and economic sustainability, and suggests there would be consequences if the United States presses the case.
“Past experiences have shown that policymakers in Washington should treat such issues with more prudence, because maintaining sound China-U.S. trade relations is in the fundamental interests of both sides,” said China’s state news agency Xinhua in a commentary Tuesday.
Currency valuation
Nothing gets more attention from U.S. politicians and other critics of China’s trade policies than the value of the yuan, also known as the renminbi.
China is accused of manipulating currency markets to keep the yuan undervalued, thus making goods produced in China cheaper and more competitive on the world market. Critics say this is a major reason for the record $295.5 billion trade gap with China last year.
After years of having the yuan basically pegged to the value of the dollar, China allowed the yuan to start to rise in June 2010. But critics argue the increase has been slower than is justified, up only about 8% since then. Critics charge it is still undervalued by more than 20%.
In October, the Senate passed a bill that would have allowed steep penalties, known as tariffs, on goods from countries that manipulate their currencies, widely seen as being aimed at China.
But despite earlier support for similar measures, the bill did not get a vote in the House
Other trade disputes
Beyond the currency and rare earths issues, there are numerous additional trade disputes between the United States and China. In November, the Commerce Department announced it was investigating charges that Chinese solar cell manufacturers are illegally “dumping” their products on the American market at excessively cheap prices.
The United States is also fighting tariffs China has on U.S. chicken exports.
President Obama vowed in his State of the Union address that he would set up a “Trade Enforcement Unit” to investigate unfair trade practices — specifically in countries like China.
A coalition of union and trade activists joined together in January to urge action against Chinese auto parts exports in order to avoid overwhelming an industry that produces more jobs than the automakers themselves.
China has also complained about some U.S. policies, such as government subsidies of the auto industry. It used that government support as justification for imposing new tariffs on U.S.-made vehicles.
But the restrictions are unlikely to have much impact on U.S. automakers, such as General Motors (GM, Fortune 500), which is No. 1 in Chinese sales, since virtually all the cars sold in China are built there as well. Less than 1% of GM’s Chinese sales are from vehicles built in the United States.
Intellectual property and technology
A few years ago, intellectual property disputes with China were typically over movie or software piracy. While that remains an issue, it only scratches the surface of the bigger dispute today: China’s “indigenous innovation” rules.
U.S. manufacturers who have been eager to set up operations in China to produce goods for that market say the rules unfairly require them to transfer their technology to their Chinese partners.
And while U.S. businesses in a wide variety of industry sectors, from autos to technology to financial services, are unusually vocal in complaining about this set of Chinese rules, they haven’t been challenged at the WTO.
“To me, that’s actually the biggest issue, more even than currency valuation,” said David Joy, chief market strategist for Ameriprise Financial. “Being forced to give up technology for access to the market is essentially blackmail.”
First Published: March 13, 2012: 3:42 PM ET
Source 3: Book- Foundation of Microeconomics Seventh Edition Robin Bade Michael Parkin. This case study covers the following chapter: Global Markets in Action.
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