Tit - for - Tat Retaliation: Chicken Feet, Chinese Tires

Unquestionably, every development based on global trade has some expenses rather than usual costs for both importers and exporters. However, sometimes each of trade partners could be smart enough to impose these expenses to each other which would result in unwillingness for either both sides or just one of them. Refer to China as the biggest commercial partner of most of the countries, it can be understood that Chinese economic development is highly tied with everyone else’s expense. Although it is ideal for China, many countries are dissatisfied due to this situation.

With regards to US as one of the biggest tire importers from China, it could be realized that they have a big share of tire industry in the US which resulted in market disruption as well as high rate of unemployment. Even though the profit margin in auto industry has decreased in US gradually during previous decades because of the company’s price policies and not paying attention to R&D, exceed tire imports from China cause to depressed vehicles sale in the US. Arguably, China also increased the tariffs for chicken feet imported to China. Nevertheless, it seems that this time, this is China that cannot meet chicken feet demand in the internal market.

As it could be seen, every single change in either country’s policy or marketplace condition would cause to the big issue between the countries. Although president Obama’s verdict is paradoxical, it sends the right message to China: Cease and Desist.  

Are all barriers on trade intentional?

Without a doubt, there are several barriers in front of international trade which some of them created by governments in order to protect their domestic production and some of others have been created through various situations either inside the country or internationally. Basically, there are two different major barriers:

1.    Tariffs (tax on imported goods) and quota (limitation on amount of imported goods). As it said earlier, tariffs and quotas are usual ways to support national products and producer. Therefore, they can be encouraged to produce high quality goods which can be competed in international marketplace.

2.    Nontariff barriers are countless. Various nations have different perspectives such as: product quality, religion attentions, harbor and airport permits or environmental factors which cause to lower amount of trade.

However, other factors which could lead to trade limitation cannot be ignored. The most important example that is really well known is about the war between Iran and Iraq in 1980. In the following I will discuss impacts of this war on Iranian trade.

Over the past 3 decades conflicts and international sanctions in the Middle East have had a significant impact on regional trade flows. Currently there exists a strong potential and development in sectors which the Gulf countries may maintain regional comparative advantage rather than international one. Development of trade in such sectors and commodities could particularly enhance regional trade flows and condense the strength of regional economies through expansion and diversification.

Overall Iranian trade contracted in 1986 because of increased import restriction coupled with consistent decreasing export earnings. Iranian world imports began to decline of almost 55 per cent. The import of capital and consumer goods had started to decline after the 1979 Revolution; however, between 1979 and 1982, after the outbreak of the war, capital goods imports fell from 30 percent of total imports to 15 percent.

 Exports suffered worse as they fell from their peak of USD 19,185 million in 1983 to their lowest point of USD 8,044 million in 1986, a decline of almost 60 per cent. The increase in prices and fixed salaries cause to a high rate of inflation, which ranged between 10 and 50 percent and Iran faced a large trade deficit during those years.

 Part of this deficit was formed by Iran's sky rocketing food imports. Food imports

increased to more than USD 2 billion by 1983 and by 1986 food imports consumed as much as 20 percent of total foreign exchange. The nation spent about USD 3 billion per year on food items such as wheat, rice, meat, vegetable oil, eggs, chicken, tea, and sugar. Soon, through a conscious effort by the Iranian government to contain the deficit crisis through restricting imports of luxury goods and import substitution imports declined to USD 2.6 billion at the end of 1986. Iran resorted to barter agreements with some countries in 1986 and 1987, trading oil for goods such as tea from Sri Lanka, rice from Thailand, wheat from Argentina.

In conclusion, it is clear that frictions in the Middle East have had a substantial impact on regional trade flows. In addition, the lack of predictability in regional trade may have created greater reliance and eventually crowded out the development of regional trade integration.

Detroit's Big Three Obstacles

Factually, all industries have been faced with these difficulties in all aspects. It is not just about auto industry or just about the USA. It is about the whole world. The determining factors for being survived today are competition and take care of customer in the best way. However, most companies still insist on their old approaches to gain profits without paying attention to the marketplace demanding.

Regarding to the Detroit’s Big Tree, it seems they are experiencing the worst situation that they have ever had: Dealing with bunch of workers who were working for a number of years then retired and have been waiting for their pension expenses which is logical from their point of view to gain. However, a huge competition makes their employers unable to pay them. In order to solve this issue, I am thinking to three possible ways:

1)    Applying more robots and machines instead of using human beings in production process would be helpful. Although it will have expense to replace machines instead of human workers, it has two advantages: first, the company can use the most up to dated machineries by leasing them and put the relevant expense on their off balance sheet documents. So, the revenue will be shown in upper level than before and the stock price will go up and company can gain more investors for covering its costs. Second, the company will not have to pay for healthcare expenses anymore. The only cost they need to pay is the lease cost which is completely incomparable to the gained profits from.

2)    Merging is another solution for this issue. In this way these companies will be come together and create a new big and powerful entity which can have the control over the national market as well as international markets.

3)    Producing new and low price generation of autos which do not need to use gas as their basic source of energy will encourage customers to buy domestic products in reasonable price with regards to the gas charge.       

Besides, there are two policies which can be administered by these firms:

1)    Outsourcing is a great way to compete with international entities. In this way, the companies can assemble their products outside the US in target countries with very low expenditures and then sell those autos to them. Therefore, with regards to comparative advantages, these companies would hit two birds with one stone: first, they are not paying healthcare expenses for foreign workers. Second, they find a ready market for their products with the lowest amount of marketing expenses.

2)    Using governmental healthcare program instead of special healthcare program inside the company can be useful if the federal laws allow employer and support them to do it.

Paying attention to these perspectives and putting them in to the practice, improving in the US auto industry would not be out of hand.  

Iran's Trade Openness

As a matter of fact, Iran is the most strategic country in the Middle East which needs to be improved in some areas including economics and international trade. Needless to say, every country has some trade regulation due to its economic situation. In my country, most of the industries are governmental exclusively. However, in order to have an active and creative economy, we do need to have an open environment in which private investors can enter to the various industries. Therefore, have a strong economy would not be out of hand. Thus, taking some steps is necessary to get through:

1.    Improving GDP by paying attention to domestic products, taking care of their quality and do the best to apply the last technology in production process. Hence, we can produce the most qualified goods which can compete in the world marketplace.

2.    Minimizing tariffs for those products which we really do need to have in the country and maximizing tariffs for those goods that we can produce in our domestic economy in order to support our national manufacturers.

3.    Thinking about other products other than oil that our country talented to produce and export such as handcrafts, agricultural production...

4.    Providing appropriate situation to have better diplomatic relationships with other countries could definitely be one of those essential steps which need to be taken.

Applying these steps can facilitate the way for Iran to access its real situation in the world both politically and economically as well as helping it to open its doors to the wider international markets.