Randomly Noted

The Obama administration’s decision to slap fat tariffs on Chinese tire imports by invoking what amounts to a trade-relations loophole (known as a “safeguard” provision) is a political mistake and poor policy that undermines our trade clout with China. The U.S. president has scored short-term points with labor interests, but the country can’t afford this in the long-term. It’s disappointing to see the U.S. Trade Representative’s office fumble in such a way, given its officials’ hitherto disciplined – and productive – stands on U.S.-China trade matters. In the past few years the USTR has taken tough, measured positions with regard to Beijing’s efforts to skirt World Trade Organization rules – and by and large the U.S. has prevailed via conventional WTO processes. I’m thinking principally of the conflicts over video pirating, and also foreign financial information. It’s telling that the American tire industry didn’t push for the new tariffs; companies that make tires in plants scattered across the globe are continually on the hunt for the lowest labor, material and shipping costs – precisely so they can sell a full range of cheap-to-upscale tires abroad – and, yes, at home to penny-pinching U.S. consumers. It’s just so obvious: globalization is here to stay; we’d better get used to it and stop pandering to labor unions and niche businesses (textiles, garlic growers, bee keepers facing Chinese competition) which, frankly, have to adapt or die. All this said, China is an utterly unreliable trade partner and the U.S., with Europe, mustn’t hesitate to use WTO and other forums to keep it in line. If only the U.S. government had done so in the tires case.

Forget about the political might of the German labor unions. General Motors’ board of directors should reject Magna International’s bid for GM’s European Opel business. The alternative buyer, a private equity firm called RHJ International, might indeed cut more jobs (the Germans’ worry) and could ultimately sell it back to GM or some other buyer, creating a period of instability (another German concern.) And today’s blog by GM Vice President John Smith – spelling out why Magna’s offer is less likely to get the board’s approval than RHJ – could be nothing more than a ploy to get a sweetener from Magna and its Russian partners. The problem with the Magna bid is the nature of the buyer itself: a consortium stitching together 1) an auto supplier based in Canada and Austria with a multiplicity of auto manufacturer customers; 2) a big bank operating in Russia, of all places, whose fortunes have lately waned; and 3) potential largesse from the German government eager as ever to kow-tow to unions (read: voters.) With RHJ, GM’s Opel goes to none other than RHJ, a team of people who purportedly know how to fix companies and eventually sell them for more money than they paid. Don’t get me wrong, RHJ wants government money, but it’s asking for less than the Magna group. What RHJ won’t do is bring Opel and its proprietary technology – some of which is shared by other parts of GM and with third-party partners – into the haze of Russia Inc., where intellectual property may not be particularly cherished. Unless Magna comes back with a supremely improved offer, GM’s board, freshly emerged from bankruptcy protection, should take the simple route. As for the unions, they’ll protest but a global scarcity of jobs mean they’ll show up at work. Continue reading…