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I first saw this story in China Daily, and my reaction was to feel very pessimistic about a global economic recovery. China is planning an import tariff on American chicken products.

An initial investigation showed that the U.S. provides subsidized soybeans and corn to its poultry industry, hurting Chinese producers, the Ministry of Commerce said on its Web site today. Importers must pay the new tariff on top of anti- dumping duties of as much as 105.4 percent imposed in February. Corn and soybeans are used in chicken feed.

Though China has found a reasonable justification for the tariff–the WTO may approve the tariff because of the US subsidies–the real reason is clearly retaliation for new tariffs the US has placed on Chinese made steel pipe and tires.

President Barack Obama in September placed tariffs on automobile tires from China after labor union complaints that imports were pushing U.S. factory workers out of jobs. In February, China, the largest market for U.S. chicken, said it would impose anti-dumping duties on imports of poultry products.

The danger is that the US will also retaliate and this will turn into an all out trade war. Analysts do not yet believe that the chicken tariff will trigger retaliation, but it is clear that the political situation is getting more contentious. Though the real costs are felt by consumers and workers in both countries, the prevailing view is that business needs to be protected from unfair trade practices.

If both countries stay on the retaliation path, neither one willing to veer away, it could turn ugly enough to escalate and discourage increased production in both countries, and that could discourage recovery worldwide.

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