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Experts say tire tariffs could worsen US-China trade relations

(Xinhua)
Updated: 2009-09-15 16:02

The new US tariffs on Chinese tire imports could escalate trade disputes between the two countries but a full-blown trade war is unlikely, experts say.

The issue is especially thorny in light of the ongoing global economic downturn in which China is sensitive to trade barriers for its exports and US labor unions are wary of foreign imports amid mounting unemployment, which currently stands at close to one in 10.

US President Barack Obama signed an order on Friday last week to enact a three-year tariff that takes effect in two weeks.

The move would slap a 35-percent duty on Chinese tire imports the first year, dropping to 30 percent and 25 percent in the second and third years, the White House announced.

The decision, which came in the run-up to this month's Group of 20 summit in Pittsburgh, where Obama wants to show his support for free trade, is the president's first major provision aimed at protecting a US industry from Chinese competition. It also comes ahead of Obama's November visit to Beijing.

Jennifer Richmond, China director at Stratfor, a global intelligence company, said the tariffs could lead to further actions on both sides.

The two nations have seen tiffs in the past, "(but) if you weigh all political and economic flash points, this has the potential to be one of the more difficult points in US-China relations."

China's commerce ministry announced Sunday that it would start investigations into whether the United States is subsidizing automotive and chicken meat exports to China.

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While the ministry made no mention of the US decision, US media have noted the timing of the announcement.

The Chinese foreign ministry has also voiced its disapproval of the US tariff measure.

"We hereby express our strong discontent and firm opposition to the US decision, which was made regardless of China's strong stance, " said ministry spokeswoman Jiang Yu in a statement.

The Obama decision represented a failure of the United States to honor commitments made at the G20 financial summit, she said, calling the action "trade protectionism" and saying the United States "abused trade remedy measures."

The action would undermine US-China trade ties, as well as inhibit the global economic rebound, the spokeswoman said.

The White House, however, stood by the president's decision.

"The president decided to remedy the clear disruption to the US tire industry based on the facts and the law in this case," said White House spokesman Robert Gibbs in a statement.

The United Steel Workers (USW), a US labor union, also expressed support for the decision.

"President Obama made clear that he will enforce America's trade laws and stand with American workers," said USW International President Leo W. Gerard.

The union had complained about the rise in Chinese imports from 14.6 million units in 2004 to 46 million a year ago, which labor groups said caused the closure of four US tire factories, putting more than 5,000 employees out of work.

But despite strong words on both sides, a trade war is unlikely, as both countries understand that would hinder economic recoveries.

Still, Richmond, the Stratfor intelligence director, said the spat could affect the global economic rebound if it fired up further -- the United States and China are two of the world's biggest players -- and could spread to other countries, wanting to protect their industries against nations that had enacted protectionist policies, she said.

Philip Levy, resident scholar at the Washington DC-based American Enterprise Institute, said the decision demonstrated Obama's relations with China were less important than his ties with US labor, on whom he is relying for a number of major domestic initiatives.

Richmond noted the Obama-ordered tariffs fell short of the 55 percent recommended to him by the country's International Trade Commission.

"He did take the tariffs down a notch, indicating that he is not looking for an all-out fight with the Chinese," she said.

Before the Friday decision, the two sides indicated a willingness to avoid protectionist pitfalls.

Chinese Commerce Minister Chen Deming said in Beijing last month that avoiding trade walls would be a "priority" while US Ambassador to China Jon Huntsman indicated a desire to cooperate with China on a variety of issues.

Analysts have noted that forums like the Strategic and Economic Dialogue have deepened trade ties and indicated both sides' willingness to beef up cooperation.

Gary Hufbauer, senior fellow at the Washington DC-based Peterson Institute for International Economics, questioned whether the decision would generate an upswing in US-manufactured tires.

"If Chinese tires are squeezed out of the US market, they will be replaced by tires from Brazil and Mexico," he said, adding that it remains unclear why the measures are implemented against China and not against other tire exporting countries such as India.

The answer might be that the case in question was political, he said.

"The unions and some Democrats in Congress will see this as a signal as to whether (Obama) is honoring campaign promises," he said.

Indeed, the president made statements on the campaign trail that some observers viewed as protectionist.

Some experts said Obama was being pulled by unions on one side and by US consumers addicted to low-cost imports on the other.

"You're damned if you do and damned if you don't," said Richmond of the president's difficulty in finding a balance between US labor and consumers.