Obama Dismisses ‘Trade War’ After Tariffs on China (Update1)

Obama Dismisses ‘Trade War’ After Tariffs on China (Update1)
By Julianna Goldman and Mark Drajem
Sept. 15 (Bloomberg) -- President Barack Obama downplayed the possibility that his imposition of tariffs on imported tires from China would spark a cycle of retaliation.
“We’re not going to see a trade war,” Obama said yesterday in an interview with Bloomberg News at the White House. “There are some tensions around this, no doubt about it. But my message is very simple: We have rules on the books.”
Obama’s argument that existing trade rules must be enforced to build support among lawmakers and the American public echoes the position taken by each of his four predecessors before they made free trade a focus. He may seek to convince China’s President Hu Jintao, whom he meets at a Group of 20 summit next week, of the need to limit the trade spat after China announced a probe into the pricing of U.S. chicken and auto products.
“There are ten to 50 companies on the U.S. side biting their nails to the bone, hoping they are not caught up in this,” said Robert Kapp, a Port Townsend, Washington-based business consultant specializing in China.
Obama’s decision on tires may encourage U.S. producers of apparel, steel or other goods to file similar safeguard complaints against imports from China, and spur China to retaliate, Kapp said.
Obama said Sept. 11 that he will impose duties of 35 percent on $1.8 billion of automobile tires from China, acting on a petition by the United Steelworkers union.
Summit Meeting
“We’ve got to establish credibility and enforcement of the rules precisely because I want to further expand trade,” Obama said in the interview, when asked what he will tell Hu at the G- 20 meeting next week in Pittsburgh. “And that is something that I think the Chinese government should understand.”
China called the tariffs an “abuse” yesterday and filed a complaint with the World Trade Organization.
“We don’t want to see individual trade remedy cases hurt the trade and economic relationship between China and the U.S.,” said Yao Jian, a Ministry of Commerce spokesman, at a briefing in Beijing today.
The tire tariffs will hurt labor-intensive Chinese industries that contribute to social stability, Yao also said. “It’s not fair if the U.S. only cares about its own employment and not China’s growth,” he said. “As the U.S. is the origin of the global financial crisis, it should shoulder moral responsibility, act cautiously and refrain from the use of trade remedies.”
Union Support
The case brought by the steelworkers union was the largest so-called safeguard petition filed to protect U.S. producers from increasing imports from China. Union leaders and Democratic lawmakers said the decision demonstrates Obama’s commitment to protecting U.S. workers and jobs.
Governments round the world have planned 130 protectionist measures that have yet to be implemented, according to a tally by Global Trade Alert, a team of trade analysts, the Wall Street Journal reported.
“G-20 leaders should undertake a stronger commitment to open markets and make concrete their call to conclude the Doha Round in 2010,” the heads of the World Trade Organization, United Nations trade and development agency and Organization for Economic Cooperation and Development said yesterday in a statement. The Doha round refers to trade liberalization talks.
Retailer Opposition
U.S. retailers that rely on imports are “disappointed in the president’s decision to bow to political pressure,” Stephanie Lester, vice president of the Retail Industry Leaders Association, which represents companies such as Wal-Mart Stores Inc. and Target Corp., said in a statement.
The retailers hope administration officials “will be more judicious in their responses to any future safeguard petitions,” she said.
The “risk is that it just spirals” into a trade war, David Spooner, a former Commerce Department official and a lawyer at Squire, Sanders & Dempsey LLP in Washington, said in an interview yesterday. Spooner represented China’s rubber industry in the case.
As long as China continues to subsidize its manufacturers and channel government funds into export-oriented businesses, trade friction with the U.S. will remain, said Jeremie Waterman, senior director for China at the U.S. Chamber of Commerce.
The safeguard complaints “are symptoms of broader problems in the U.S.-China relationship,” he said in an interview yesterday. Obama’s decision “is not likely to save a single job, but it’s a legal and legitimate action.”
Size of Trade
The U.S. and China will try to make sure the tensions that erupted over tires don’t disrupt a commercial relationship that totaled $409 billion last year, Kapp said. China, the second- largest U.S. trading partner after Canada, is also the largest holder of U.S. debt with $776 billion.
“The Chinese will be angry,” said Elliot Feldman, a partner with Baker Hostetler LLP in Washington, who writes a blog on China trade. “But there is a limit to their anger.”
Feldman predicted China won’t prevail in its complaint over the tire tariffs because Chinese officials accepted such “safeguard cases” when it joined the WTO.
“The U.S. is confident that our action is fully WTO- consistent,” Carol Guthrie, a spokeswoman for the U.S. Trade Representative’s office, said in an interview. The safeguards were part of “the deal China agreed to.”
In safeguard cases, companies need to show only that imports are surging and not that the products benefit from subsidies or are being dumped at a discount.
Goodyear, Cooper
Some of the largest U.S. tire companies didn’t join in the union’s petition for relief from Chinese tire imports. Goodyear Tire & Rubber Co., the largest U.S. tiremaker, stayed neutral. Cooper Tire & Rubber Co., the second-largest U.S. tiremaker, opposed the relief. The company has a plant in China.
“We see positive implications for U.S. pricing,” Deutsche Bank Group said in a report yesterday. “Tightening supplies of Chinese tires could exacerbate this phenomenon in the U.S.”
The USA Poultry & Egg Export Council said China’s move to investigate whether the U.S. sold poultry there for below-market prices was prompted partly by bad U.S. trade policies, including the tariffs on tires.
“Our own government is creating these problems more so than the Chinese,” James Sumner, president of the group representing producers of 90 percent of U.S. chicken and egg exports, said in an interview yesterday. “We are upset with the way this has been handled by the administration.”
To contact the reporters on this story: Mark Drajem in Washington at mdrajem@bloomberg.net; thoman1@bloomberg.net; Julianna Goldman in Minneapolis at jgoldman6@bloomberg.net. Last Updated: September 15, 2009 00:56 EDT