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Tire Trade Tiff Rolls On

This article is more than 10 years old.

Just two days after the United States slapped Chinese tire imports with hefty tariffs, Beijing has hit back by saying it would launch an anti-dumping investigation into automobile and chicken products from the U.S.

China's Commerce ministry said Sunday that the probe was in response to complaints from local manufacturers that claim some products from the U.S. have an unfair advantage. At the same time, Beijing condemned protectionist policies adopted elsewhere.

The "protectionist" policy that seems to have triggered the Chinese tit-for-tat investigation was an order signed on Friday by President Barack Obama that imposes a 35% tariff on tires imported from China on top of the existing import duty of 4%.

An editorial in Monday's edition of the China Daily newspaper, which is widely viewed as a mouthpiece for Beijing, labeled the tariffs as "irresponsible" and also warned of the possibility of severe consequences, such as a chain reaction of protectionist trade measures that would slow the pace of the global recovery.

The escalating trade row comes against the backdrop of preparations for the next G-20 summit in Pittsburgh on Sept 24-25, when leaders from the world's twenty most powerful economies are scheduled to meet. In addition, President Obama is planning to visit China in mid-November.

Less than one year ago, many of the same world leaders were holding emergency meetings to devise measures to jump-start their respective economies. A popular catchphrase at the time was a pledge to resist the temptation of adopting protectionist policies that would curb international trade and undermine the global recovery.

Since then, the International Trade Commission (ITC), which is the U.S. agency that advises the president and Congress on trade matters, recommended imposing much higher tariffs on tire imports from China. The ITC suggested a sliding tariff that would have started at 55% the first year before falling to 45% and 35% in the second and third years, respectively. President Obama's order adopts tariffs that begin at 35% and then drop to 30% and 25% in the following two years.

The decision to impose the tariffs was in response to complaints from American factory workers represented by the United Steelworkers union who claim that 5,000 of their jobs have been lost since 2004 because underpriced Chinese imports have been flooding the market. Supporting the workers in their cause is a variety of like-minded companies and unions with similar complaints against low-cost Chinese imports.

On Wednesday, steel companies United States Steel Corp and Nucor rallied behind the workers, sending a letter to Obama urging him to impose the tariffs. Siding with these major producers were groups like the National Cotton Council, the American Corn Growers Association and the National Farmers Union, who support the restrictions because low-priced imports from China directly compete with the goods their members produce.

Opposed to the new tariffs is a coalition of Chinese tire, rubber and metal manufacturers, business leaders, free trade advocates and U.S. distributors who rely on cheap goods from China to keep costs down.

Companies that export their products to China like Caterpillar oppose the tariffs because they fear further investigations and retaliation from Beijing will follow. General Motors and Ford have also joined the chorus of critics, arguing that price tags on new cars and trucks could inflate by as much as $150.

In China, the view has been one of almost universal condemnation. The chairman of Giti Tire, Enki Tan, told Forbes last month that the steelworkers' move and the ITC's finding of "market disruption" was protectionist, anti-capitalistic and undemocratic.

Not only will consumers face higher prices, he notes, but the tariffs will only shield a small number of union members. Most important, imposing tariffs won't create jobs because competitors--Bridgestone, Continental AG and Michelin--will likely compensate by importing tires from Vietnam and other countries where the cost of labor is also low, he argued.