China and the U.S.: Playing Chicken with Exports

7. February. 2010
Seeking Alpha (by: Howard Richman)

In the game of chicken, two cars barrel down a road headed toward each other. The game ends when one or the other veers off, or they crash. Well, right now, Obama and the Chinese government are playing a game of chicken, and which one wins will determine the future of the American economy and this presidency.

On February 5, the Chinese government initiated the game when it announced plans to slap tariffs of 43.1%-105.4% on American chicken parts. This move follows its rejection of Obama's initiative to seek greater Chinese purchases of U.S. exports at Obama's face-to-face meeting with Chinese President Hu on November 17. The United States needs rapidly increased exports to China's rapidly growing market in order to come roaring out of this recession.

During the first three quarters of 2009, China sold about $219 billion worth of goods and services to the United States while only purchasing $61 billion from the United States. Obama could force them to buy more American exports by threatening to limit our imports from China under the special WTO for trade deficit countries which states:

(A)ny contracting party, in order to safeguard its external financial position and its balance of payments, may restrict the quantity or value of merchandise permitted to be imported.

When two cars play chicken, the winner is either the driver that has the most nerve or the car that would be least damaged. With the dollar strengthening in currency markets and consumer goods imports dragging down our economy, we are in a much better position than China right now to survive a head-on trade crash. The question is, does our diver have the nerve?