Asia-Pacific, Economy & Trade, Headlines, North America

TRADE: "Tyre War" Strains U.S.-China Relations

Eli Clifton

WASHINGTON, Sep 15 2009 (IPS) - U.S. President Barack Obama's decision last week to impose tariffs on Chinese tyre imports has sparked a war of words with Beijing, which could lead to retaliatory tariffs and a possible World Trade Organisation (WTO) investigation into U.S. use of emergency tariffs against one of its biggest trading partner.

Late on Friday evening, Obama authorised a 35-percent emergency tariff on Chinese tyre imports in order to curb a "surge" of Chinese tyres which, according to U.S. trade unions, have cost 7,000 U.S. factory workers their jobs.

Beijing responded quickly to condemn the U.S. tariffs and threatened its own tariffs against U.S. products.

Chen Deming, China's minister of commerce, condemned the U.S. tariffs, saying that it "sends the wrong signal to the world" and, "(n)ot only does it violate WTO rules, it contravenes commitments the U.S. government made at the [April] G20 financial summit".

On Sunday, Beijing took steps to initiate retaliatory tariffs against U.S. poultry and automobile imports. It also suggested that it might ask the WTO to investigate the U.S. use of emergency tariffs.

Obama's decision to come down hard on Chinese imports was defended by the White House as a reasonable response to offer relief to U.S. tyre manufacturers and hold China to the promises they made upon ascension to the WTO in 2001.

"When China came in to the [WTO], the U.S. negotiated the ability to impose remedies in situations just like this one," said U.S. Trade Representative Ron Kirk on Friday. "This administration is doing what is necessary to enforce trade agreements on behalf of American workers and manufacturers. Enforcing trade laws is key to maintaining an open and free trading system."

Indeed the "safeguard" measure to which Kirk was referring was written specifically to permit the U.S. to impose tariffs on Chinese goods if imports are growing rapidly and hurting U.S. manufacturers.

The measure was a condition of China's membership in the WTO and lasts until 2013, but Beijing has suggested it may use the WTO's review and dispute resolution mechanisms to challenge Obama's tyre tariffs.

Since its ascension to the WTO eight years ago, China has shown both a capability and willingness to use sophisticated legal tactics within the WTO to protect its interests in disputes with trading partners.

Some analysts have expressed concern that the White House's harsh response to growing Chinese tyre imports could spark a trade war of retaliatory tariffs and spur a protectionist trend in U.S. trade policy.

"The good news is that we now have clarity about where the president stands on trade. The bad news is that his stance reflects his isolationist primary election campaign rhetoric and not the post-election messages of avoiding protectionism and repairing the damage done to America's international credibility by unilateralist Bush administration policies," wrote Daniel J. Ikenson, associate director of the Centre for Trade Studies at the pro-free trade Cato Institute, last week on the Cato website.

"Short of armed hostilities or political subversion, no state action is more provocative than banning another's products from entering your market," he said.

However, other analysts have said that recent history has shown China to err toward measured responses in trade disputes and an increasing tendency to resolve disputes through the WTO.

Obama's support of trade union's and the U.S. tyre industry may reflect the Democratic party's close ties to organised labour, a vital ally for any Democratic politician seeking election.

"For far too long, workers across this country have been victimized by bad trade policies and government inaction," said United Steelworkers president Leo W. Gerard Monday. "Today, President Obama made clear that he will enforce America's trade laws and stand with American workers. The President sent the message that we expect others to live by the rules, just as we do."

Beijing hasn't overlooked the U.S. domestic political dimension in its decision to target poultry farmers and auto manufacturers for retaliatory sanctions. Both agriculture and the auto industry are politically sensitive industries in the U.S., and automobile manufacturers recently underwent a controversial multibillion dollar bailout.

At the root of the situation may be Obama's desire to show the U.S. manufacturing sector that he will stand up to Beijing, enforce existing trade agreements and reduce a trade deficit with China that reached 268 billion dollars in 2008.

For its part, Beijing must deal with increasing Chinese nationalism, which has pressured the government to address U.S. criticism in more aggressive and outspoken ways.

The trade dispute between Beijing and Washington will be hard to overlook at next week's G20 summit in Pittsburgh, where an ambitious agenda will push member countries to make progress in a disparate array of issues, including North Korea, Iranian nuclear ambitions, financial market reforms, numerous proposed reforms of the global financial system and forming a roadmap to conclude the stalled Doha round of trade talks.

Most if not all of the initiatives will require the cooperation of the U.S. and China – the world's first and third largest economies.

"I think it's in China's interests and our interests and the world's interests to avoid protectionism, particularly just as world trade is starting to bounce back from the huge declines that we've seen in the last year," Obama told CNBC.

He said he understood China's upset with the U.S. decision to impose tariffs, "But keep in mind, we have a huge economic relationship with China. We have cultivated a strong strategic relationship with China."