China- USA Trade Relations
Lakhvinder Singh       09-09-29

On Sept. 11, the U.S. imposed a new tariff on tires imported from China, while saying the American tire industry has been injured by large-scale imports from China. The U.S. claims that they have surged more than 200 percent since 2004.

Trade action has been taken under section 421 of the 1974 Trade Act, which allows a special safeguard provision (to which China agreed upon joining the WTO in 2001) to impose trade remedies if a country faces a damaging rise in imports from a particular country.

While this act has been used by many other countries in the recent past, this is the first time the U.S. has taken action to utilize safeguards against China.

Offended by America's perceived unilateral and discriminatory action, China reacted with outrage, charging the U.S. with serious violations of WTO laws and turning to ``commercial protectionism.''

China refused to take the U.S. action lying down and vowed immediate counteraction and severe retaliation. It was the first time in years that China has ``talked tough'' in its trade disputes with the U.S.

Earlier, the U.S. International Trade Commission (USITC) had recommended a higher tariff of 55 percent in the first year, 45 percent in the second year and 35 percent in the third year.

But in acknowledging Chinese sensitivities on trade issues, the Obama administration settled on 35 percent for the first year, 30 percent in the second and 25 percent in the third.

The Americans' decision to retaliate against Chinese imports was not well received by governments around the world. Many perceive that the U.S. talks tough against protectionism only when its own industries are threatened. The ``Buy American'' provision in the U.S. stimulus package has also weakened the U.S. rhetoric on free trade in recent months.

The U.S. needs China's support on a wide range of issues from Iran and North Korea to climate change. This tire-related decision could have wider ramifications on all these important issues where China's support could be crucial to the U.S.

The original case was brought by the Steel Union's workers in April, claiming more than 5,000 tire workers have lost their jobs since 2004 as China has flooded the U.S. market.

U.S. trade representatives, stressing the negative impact on the American tire industry, have claimed that four tire plants closed in 2006 and 2007 with three more closing this year.

It was also claimed that U.S. imports of Chinese tires have more than tripled from 2004 to 2008, with China's market share in the U.S. rising from 4.7 percent in 2004 to 16.7 percent in 2008. China, however, has denied these figures, claiming a mere 2.2 percent increase in tire imports in 2008.

Moreover, China also claimed a 16 percent fall in the first half of 2009 compared with the first half of 2008. According to data from Global Trade Information Services, China exported $1.3 billion in tires to the United States in the first seven months of 2009, while the U.S. shipped about $800 million in automotive products and $376 million in chicken meat to China.

The U.S. is, of course, a very crucial market for China's continued economic growth. In 2008, trade volume between the two countries crossed the $400-billion mark, with China enjoying a more than $268-billion trade surplus with its American partner.

This trade dispute threatens a crucial relationship in which China has reaped more bottom line economic benefit. Public pressure to retaliate against the U.S. has thus put the Beijing government in a very difficult situation.

In the recent past, trade disputes between the U.S. and China had progressed no further than grumbling, keeping in mind the strategic importance of the relationship in which the U.S. buys $4.46 worth of Chinese goods for every $1 worth of American goods sold to China.

Yet, this latest trade decision has made China react very angrily, specifically because it is threatening this delicate equation, with Chinese officials now showing their alarm.

To pre-empt growing domestic pressure to react to the latest provocation aggressively, China announced it would investigate ``certain imported automotive products and certain imported chicken meat products originating from the United States'' to determine if they were being subsidized or ``dumped'' below cost in the Chinese market.

If the United States were found guilty of violating subsidies or dumping rules, China would be free to impose tariffs on these products.

From all the tussle, a fundamental question has arisen of why China and the U.S. are fighting over something as mundane as car tires worth $1 billion a year, when they need each other's support on many crucial issues including the revival of the world economy.

It looks like it may not be just about tires after all, but rather $100 billion of automotive vehicles, parts and engines the U.S. imports from abroad.

In this tire action, China suspects the U.S. might be attempting to thwart China's future plans to sell cars and other motor vehicles on the American domestic market. While China may not currently be selling cars in the U.S., it may very well have distinct plans to try and imitate Japan and Korea's successes in the American auto market.

The Chinese also worry that U.S. action might set a discriminatory precedent against Chinese goods, by encouraging other countries to follow suit and start targeting Chinese goods in their own domestic markets.

China simply cannot afford this, as its reliance on exports is absolutely crucial for its own economic recovery and its long-term economic plans. Thus, the tough talk and stance is also aimed at other countries to discourage any from taking similar action.

How the U.S. will react to this tough reaction from an increasingly assertive and confident China remains to be seen.

* The article was orginally published in Korea Times in September 29, 2009.