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"Playing Chicken with China" - we're published in today's American Thinker
Howard Richman, 2/15/2010

Here's how we begin:

There is a game of chicken being played on trade policy with China, with potentially severe consequences for the world. China's response to U.S. and European efforts to constrain its mercantilist policies is to threaten an escalating trade war in which some or all parties may lose. To win, the U.S. must transform the game.

Recently, China announced that it was imposing tariffs of up to 105.4 percent on U.S. chicken exports. One of the products in dispute is apparently chicken feet. Because these are sold for ten times as much in China as in the U.S., China accuses U.S. chicken producers of dumping chicken feet below cost in the Chinese market. China had earlier imposed tariffs on American nylon products after the Obama administration imposed tariffs on Chinese tires, authorized by China's agreement with the United States when it entered the World Trade Organization. The chicken tariffs were announced after the U.S. offended China by selling weapons to Taiwan, which it claims as Chinese territory.

Given the substance of the current dispute with China, it is ironic that the "game of chicken" (a long-studied model of conflict) offers insights into how the U.S. should proceed. In this game, two players must decide between aggressive and cooperative strategies. Mutual selection of cooperative strategies provides reasonably good payoffs for both. But a player is better off selecting an aggressive strategy when faced with an opponent who cooperates. In this situation, the cooperator suffers. However, the cooperator does not necessarily benefit from switching to an aggressive strategy as well. If both players select the aggressive strategy, both suffer enormous losses....

And here is how we conclude:

The solution is to tie Chinese exports to the U.S. to Chinese imports from the United States, as permitted by a special WTO rule for trade deficit countries. In "Trading Away Our Future," we recommended that the U.S. use auctioned import permits to gradually limit the value of our imports from China (and other mercantilist countries) to the value of their imports from the United States. A less bureaucratic approach would be to impose a tariff on Chinese goods that would be proportionate to the trade deficit.

Actions such as these would change Chinese behavior. Thence, if China wants to restrict American chicken exports, it will have to accept a reduction in Chinese exports to the United States. When trade comes toward balance, the cost of the permits or tariffs would be reduced. When trade reaches approximate balance, all import restrictions disappear.

If U.S. leaders are afraid to do anything about China's mercantilism, American workers, American industry, and American competitiveness will continue to suffer. It is time we stopped being chicken and took a stand for balance.

You can read the entire commentary at the following link:

http://www.americanthinker.com/2010/02/playing_chicken_with_china.html