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In his first major trade move since taking office in January, US President Barack Obama announced on Friday that the US would impose 35 percent tariffs on Chinese tyres in a bid to shield domestic producers from what the White House Press Secretary called an ‘exponential’ increase in imports of the products.
The move triggered a swift reaction from China, which filed a WTO dispute case against the new duties just three days later, alleging that the tariffs violate world trade rules. Beijing also vowed to launch anti-dumping probes into US exports of autos and poultry products, although Chinese officials insisted the investigations were ‘not revenge’ for Washington’s new tyre sanctions.
“This is a grave act of protectionism,” China’s commerce minister Chen Deming said of Washington’s new duties. “Not only does it violate WTO rules, it contravenes commitments the United States government made at the G20 financial summit.”
The ad valorem duties, which are set to take effect on 26 September, will last three years and will decline from 35 percent in year one to 30 percent in year two and 25 percent in year three. The tariffs will be in addition to the four percent duty that Washington already places on imports of Chinese tyres.
Washington alleges no Chinese trade violations in its justification of the new duties; the White House is simply making use of a ‘transitional product-specific safeguard’ clause that was written into the terms of China’s accession to the WTO in 2001, a measure that was codified in Section 421 of the US Trade Act. The measure provides a bulwark against potential import surges for WTO members that might struggle to adjust to China’s new position in the world economy. The measure will expire in 2013.
In April, the United Steel Workers, a Pittsburgh-based labour group, asked the US International Trade Commission (ITC) - an independent federal agency tasked with evaluating trade complaints - to investigate whether imports of Chinese tyres met the criteria for ‘market disruption’ needed to invoke the Section 421 safeguard. The group claimed that imports of Chinese tyres more than tripled between 2004 and 2008 and that US tyre production declined by 25 percent over the same period, triggering plant closures and the loss of more than 4,400 jobs.
The ITC’s conclusion, delivered in June, was music to the union’s ears: the agency recommended that the US impose three-year duties on Chinese tyres, starting at 55 percent and decreasing by 10 percentage points each year. Section 421 gives the President, not the ITC, ultimate discretion over what, if any, safeguard measures are warranted; Obama had until 17 September to make his decision.
The ITC recommended four times that former President George W. Bush invoke the safeguard, but he rejected all of the requests. Now, with a labour-friendly leader in the White House, the unions anticipated an outcome in their favour. Obama relied heavily on union support during his election campaign last year, and he is hoping to recruit organised labour to help him in his ongoing fight to reform the US healthcare system.
But US industry was not wholly supportive of the new tariffs. Two major US tyre companies - Cooper Tire and Rubber Company and Toyo Tires - spoke out against the ITC’s recommendations, arguing that the proposed duties would stifle their activities in China, where both companies have operations, and ultimately do their companies more harm than good.
But Obama came down on the side of labour; the announcement was made public at 21.45 on Friday night.
“No trading system will work if we fail to enforce our trade agreements,” Obama said in a speech on Wall Street on Monday. ”So when - as happened this weekend - we invoke provisions of existing agreements, we do so not to be provocative or to promote self-defeating protectionism, we do so because enforcing trade agreements is part and parcel of maintaining an open and free trading system.”
China pushes back
Beijing responded forcefully to Obama’s announcement, filing suit almost immediately at the WTO to officially challenge the new duties. A statement issued by the Chinese mission to the WTO accused Washington of “abusing trade remedies” in the interest of protectionism.
“It was a misuse of the special safeguard measures and sent a wrong signal to the world,” said Chinese Commerce Minister Chen Deming.
World leaders vowed at a summit of the G20 in April to refrain from imposing new measures that would restrict world trade as the global economy struggles to get back on its feet.
More than just violating the G20 commitment, though, Beijing insists that Washington’s new tariffs cannot be justified under existing trade rules. Chinese tyre exports to the US fell 16 percent in the first half of this year compared with the same period in 2008, China’s Ministry of Commerce insisted in a statement, and 2008 exports were only a 2.2 percent increase from 2007.
Following Beijing’s request for consultations, the two sides will now have 60 days to attempt to resolve the matter bilaterally. If no solution is reached, China has the right to ask the WTO to create a dispute panel to hear its case.
What’s at stake
Tensions over the tyre row quickly threatened to spread to other areas of the countries’ bilateral commerce, as Beijing revealed over the weekend that it was launching anti-dumping investigations into imports of US autos and poultry products.
China and the United States are each others’ second-largest trading partners (China’s biggest partner is the European Union, while the US’ is Canada). When it comes to trade, though, the bilateral relationship means more to Beijing than it does to Washington. Chinese exports to the US account for 6 percent of China’s total economic output, 13 times the share of the American economy represented by US exports to China, according to a report in The New York Times. But China holds vast amounts of US debt, and a massive sell-off of US Treasury Bonds could cripple the American economy.
Whether the tyres dispute will spill over into other areas of US-Sino relations has been the subject of intense speculation among political observers. There is certainly plenty at stake: the two countries are already deeply engaged in talks on how to address climate change, the global economy, and North Korea’s nuclear ambitions.
The White House insists that the new trade row will not hinder talks at next week’s G20 summit in Pittsburgh, where Obama will meet with Chinese President Hu Jintao and other world leaders. Some observers disagree.
“Trade restraints under Section 421 will no doubt be considered by the Chinese to be a directive of the US president,” says Daniel Ikenson of the Washington-based Cato Institute, “and thus the offence taken and the consequences wrought could be profound.”
But Edward Gresser of the Progressive Policy Institute sees hints of hyperbole in some of the reactions to the tariffs. “Experts and trade-watchers see the tariffs as a major event. For free traders, it risks being the first step towards a 1930s-style closure of world markets. Populists alarmed about competitive pressure, on the other hand, see it as a bold stand for American workers and against foreigners,” he wrote for The YaleGlobal Online. “Both are probably wrong. The tariffs on Chinese tyres probably won’t cause a trans-Pacific trade war; nor will it make much difference for the American tyre business either.”
ICTSD reporting; “China: US tire tariff sends ‘wrong signal’ to world,” XINHUA, 13 September 2009; “China moves to retaliate against US tire tariff,” THE NEW YORK TIMES, 14 September 2009.
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To avoid a descent to the valley of trade restrictive measures and revenge tactics as illustrated in the US/CHINA tyre tariffs imbroglio it is very important that policy makers do not pander to domestic lobby and labour groups whose swan song is composed of all the elements of protectionism, insularity,irredentism all the themes antithetic to the expansion of global trade.
It is instructive that US industry was not wholly supportive of the new tariffs.Your report indicated that two major US tyre companies - Cooper Tire and Rubber Company and Toyo Tires - spoke out against the ITC’s recommendations.It is also noteworthy that former President George W. Bush refused to invoke the safeguard request.With all due respect to President Obama,i think he just played to the gallery
becaused in these days of the gobal economy,trade is no longer a “flag waving” affair.