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US-China trade dispute about more than tires

The US tariff on Chinese tires could have a ripple effect. Trade disputes have been rising among other nations.

By Staff writer / September 14, 2009

A worker loads tires onto a truck trailer at a tire factory in Hefei, Anhui province on Monday.

Reuters

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President Obama has ratcheted up US-China trade tensions at a sensitive moment for the global economy.

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The dispute in question centers around automobile tires, and the White House has sided with US manufacturing workers who say they are being harmed by rapidly rising imports from China.

The president's decision has implications for a fragile domestic economy: A new 35 percent tariff on Chinese tires could help some American factory workers keep their jobs, at a time when economists say America needs manufacturing industries as a core platform for future economic growth. But the move also promises to make US consumers – already struggling in the recession-battered economy – pay higher prices for tires.

Mr. Obama's decision in the tire dispute also has international implications, since no nations are more central to global trade than US and China. In broad terms, the global recovery from recession will hinge in part on rebuilding commerce, yet many nations face internal pressures to aid specific hard-hit industries. Such pressure could lead to more trade disputes.

"This is extremely worrisome. One only hopes that both sides will keep their heads," says Tu Packard, an expert on the global economy at Moody's Economy.com. Trade disputes have also been rising among other nations, she says.

Over the weekend, China responded to Obama's tariff plan by saying it would investigate unfair-trade complaints involving American auto and poultry products.

All this doesn't mean a new trade war is going to break out. Most national governments are very mindful of a central lesson from the Great Depression: Curtail trade, and the whole economy suffers. And for the most part, Ms. Packard says, the World Trade Organization has been serving as a forum for resolving disputes.

Last month, for example, China lost an appeal of a WTO ruling in an auto-parts case brought by the United States, the European Union, and Canada. And a high-stakes dispute about aircraft – in which Boeing says that European rival Airbus has gained from illegal subsidies – is working its way through the WTO process.

On Monday, China took the tire issue to the WTO, filing a complaint over the new US tariff.

China's tire exports to the US have risen from 14 million in 2004 to 48 million last year, the US International Trade Commission found. Americans bought about 276 million tires last year, so the Chinese inroads are significant, causing the market share of domestic producers to fall below 50 percent of unit sales last year. Imports from other nations have risen only slightly during the past five years.

The US has lost about 5,000 tire jobs since 2004, but critics say the new tariff will hurt the economy more than it helps on the jobs front.

One lobbying group, the Consuming Industries Trade Action Coalition, issued a statement arguing that the tariff will cost jobs in downstream industry (automaking), will push up prices for consumers, and could lead to a rush of similar protectionist trade cases being filed.

Obama's tariff is lower than the 55 percent levy recommended by the International Trade Commission. But the ITC panel was split, with a four-member majority supporting sanctions and two members arguing for aid for workers who lose their jobs due to the industry’s rapid transition.

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