Why Auto Parts?

China has announced that it will retaliate for Obama's decision to impose sanctions on Chinese tires by considering sanctions [1] against US imports into China of chicken and auto parts.

The initial reaction from China, the U.S.’s second-largest trading partner after Canada, indicates an exchange of trade penalties may follow. China’s exports to the U.S. were $252 billion last year, compared with $81.4 billion of imports, according to Chinese government figures.

The U.S. shipped $2.9 billion of automobiles and auto products to China last year. The Asian nation imported $957 million of poultry from nations including the U.S. in 2007, government figures also show.

Chinese industries complain that they’re being hurt by “unfair” U.S. trade practices, the nation’s Ministry of Commerce said on its Web site yesterday. The Beijing-based ministry is probing complaints about U.S. subsidies for auto and chicken products, a spokesman said today. The agency is also probing the alleged dumping of the chicken products, he said.

I assume China is targeting chicken because our Ag is subsidized and the meat industry has a lot of clout in this country.

I'm more fascinated by China's decision to go after auto parts (and note, some of the announcements on this say "automotive products," which might include cars themselves).

In truth, China imposes huge tariffs on cars coming into its country (and ties permission to import cars to sourcing in China--for example, GM might get to import a certain number of Cadillacs in exchange for sourcing another part of its Chinese-production in China). And the import of parts is often limited to more complex parts that are the same in China as they are in the US. There's not much there there.

As the NYT notes [2], going after parts doesn't seem to make sense and may backfire.

But spotlighting automotive trade may be risky for China. G.M. and Ford both rely mostly on local production to supply the Chinese market, while China is rapidly increasing auto parts shipments to the United States.

Except.

Except that the US Government owns a majority stake in GM, and GM will not succeed in turning around without continued growth in the Chinese market.

Now I don't know whether China believes it can claim US support for GM over the last year constitutes a subsidy, or whether it just wants to send a message that it will make it more difficult for GM's partnerships in China to succeed. But it happens to have targeted the industry in which the US Government has the most invested.