Analysis: U.S. tariffs on Chinese tires cast protectionism shadow over world economy
09:32, September 13, 2009
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The widely watched China tire case was concluded on Friday when U.S. President Barack Obama made a ruling to impose punitive tariffs on all car and light truck tires imported from China.
Analysts say the ruling may cast shadow of protectionism over the already fragile world economy.
This ruling came at a time when the U.S. economy is at an uncertain turning point from the worst recession since World War II.
The case is widely seen as a test of conflicting pressures on Obama to protect jobs in the United States and to promote free trade around the world.
The powerful U.S. Steelworkers Union representing workers at major tire manufacturers in the country filed a petition against China in April for import relief and won a favorable ruling from the U.S. International Trade Commission (ITC).
The panel recommended Obama impose a 55 percent tariff on the Chinese tire imports, which would be reduced to 45 percent in the second year and 35 percent in the third before being removed.
The steelworkers asked for protection under Section 421 of the U.S. trade law, which requires petitioners to show that imports from China have disrupted the U.S. market.
Obama, who must make a decision on the tire case before Sept. 17, at last set punitive tariffs at 35 percent for the first year,30 percent in the second and 25 percent in the third, according to the White House.
The new tariffs, on top of an existing 4 percent tariff on all tire imports, will take effect on Sept. 26.
Although the final rates of tariffs are lower than that the ITC recommended before, it still is high enough to restrict tires imports from China.
"The president decided to remedy the clear disruption to the U.S. tire industry based on the facts and the law in this case," White House Spokesman Robert Gibbs said in a statement on Friday.
Chinese tire producers say the low-cost Chinese tires have never disrupted the U.S. tire industry. In fact, they are complementary, not competitive to the U.S. products. Besides, China is adjusting its export policy in dealing with the financial crisis.
"Imports of tires from China have been falling rapidly for several months. According to the latest official data, imports of tires are down almost 9 percent this year," said David Spooner of Squire, Sanders & Dempsey, counsel to the Chinese tire industry.
The U.S. economy, despite some positive signs of recovery, is still in critical situation, with increasing unemployment rate.
The latest data showed the unemployment rate for July reached 9.7 percent, the highest in 27 years.
Recent polls also showed that domestic support for Obama, who is promoting the controversial medicare reform, has been falling in recent months.
Observers said that the president needs his people to help make domestic reform smoother.
HURTING BILATERAL TRADE RELATIONS
The ruling came at a time when the China-U.S relationship is at the beginning of a new era.
While the two countries have grown increasingly dependent on each other in economy, trade disputes also increase.
In a separate case, the U.S. Commerce Department issued a preliminary decision on Wednesday to impose duties ranging from 10.9 percent to 30.6 percent on steel pipe imports from China.
The sanction against Chinese tire exports to the U.S. market "will cause a lose-lose situation on both countries," said Mary Xu, deputy secretary general of the China Rubber Industry Association. "It is opposed by both sides."
On the U.S. side, the tariffs were strongly opposed by U.S. tire distributors and retailers, who said the restrictions would raise prices, hurting cash-strapped consumers.
"Tariffs will not create manufacturing jobs in the United States," said Jim Mayfield, president of Del-Nat Tire Corp., which sells private-label tires, including Chinese-made imports.
Mayfield said for the past 15 years, major U.S. producers had focused on higher profits and better performing tires instead of what industry insiders call "tier three tires" that service lower end and second-hand automobiles.
With tariffs imposed, "prices will go up for American consumers and choices will go down," a Washington Post report said on Friday," Consumers who can least afford it would pay the most."
The Chinese government also spoke strongly against the tariffs.
"We hope the U.S. government will refrain from taking action, for the long-term healthy and stable development of U.S.-Chinese relations," Deputy Commerce Minister Fu Ziying said last month.
Some economists warned that the protectionist move by the Obama administration will ultimately hurt the U.S.-China trade relations that are becoming more and more important due to the global financial crisis.
"The U.S. must stop taking decisions against China, even small ones, without putting forth an explicit trade policy, which we have thus far failed to do," Derek Scissors, a research fellow at the Heritage foundation's Asian Studies Center told Xinhua.
ADDING UNCERTAINTY TO WORLD ECONOMY
Seen as a test for Obama's trade policy, this tire case signaled protectionism and added uncertainty to the world economy which is in a nascent and fragile recovery.
"This is the administration's first real test on trade policy...they're either going to implement new barriers or not," said Chad P. Brown, an economics professor at Brandeis University.
"The world is not in a run-of-the-mill recession. The turnaround will not be simple. The crisis has left deep scars, which will affect both supply and demand for many years to come," Oliver Blanchard, chief economist and director of the International Monetary Fund's Research Department, warned in a newly published article. He noted that protectionism will be a threat to the future of world economy.
As an economic summit of the Group of 20 leading industrialized and developing countries in Pittsburgh is scheduled to be held on Sept. 24-25, the U.S. attitude toward free trade will be questioned.
Many leaders have criticized strongly those countries that protect their key industries. Obama, too, has spoken out against protectionism.
Other countries will view Obama's decision on tires as a test of that stance. Now the answer seems clear.
The U.S. rhetoric on free trade also has been questioned because of a "Buy American" provision in the U.S. stimulus package.
"The United States may have a large trade imbalance with the rest of the world right now, but the answer is not to reduce our imports. It's to make and sell more products and services that the rest of the world wants to buy," said Gary Locke, secretary of the U.S. Commerce Department.
"Protectionism is a concern at all time because it's very tempting for people to resort to," Stewart Baker, former assistant secretary of the U.S. Homeland Security Department and now partner of the Washington based Steptoe & Johnson LLP, told Xinhua in an interview.
"We should always be alert to prevent it (protectionism). All nations will make it less likely to grow," Baker said.