First shot in a trade war ? Or a misfire?

[wtf]

http://www.nytimes.com/2009/09/14/bu...e.html?_r=1&hp


China unexpectedly ratcheted up pressure on the United States in a widening trade dispute on Sunday evening, taking steps toward imposing tariffs on American exports of automotive products and chicken meat in retaliation for President Obama’s decision late Friday to levy tariffs on tires.

The action by China’s commerce ministry came as both governments are facing domestic pressure to take tougher stands against the other on economic issues, even as leaders seek to work together to combat global security threats, like the nuclear ambitions of Iran and North Korea. Mr. Obama’s decision to impose a tariff of up to 35 percent on Chinese-made tires came after he promised labor unions during the 2008 campaign that he would more strictly enforce trade laws, especially against China, which has steadily gained manufacturing jobs as the United States has lost them.

... (Story contd) ...

[wtf]

If this lasts, then both China and US stand to lose. On the other hand the biggest gain will be to Malaysia (Tire maker) and Japan (car maker).

On the other hand if the situation deteriorates into a series of trade-barrier wars, then both US and China will lose pretty badly.Arguably China stands to lose more since US buys $4.5 worth of goods from China for every $1 it sells.

China could dump the dollar reserves it holds, but then it would immediately cause Renminbi to rise, which further messes up their trade since no one else in the world will then be able to buy their stuff.

I think both nations stand to lose as you pointed out but the difference is that the US can theoretically outlast China in such scenarios. China can not afford to liquidate their holdings in dollars, they intend to continue consolidating as the US dollar is expected to steadily rise.