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Threat of Trade War With China Sparks Worries in a Debtor U.S.

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"But no trading system will work if we fail to enforce our trade agreements," he added. "So when -- as happened this weekend -- we invoke provisions of existing agreements, we do so not to be provocative or to promote self-defeating protectionism. We do so because enforcing trade agreements is part and parcel of maintaining an open and free trading system."

There are reasons why the dust-up over tires might settle down. China exports three times as much to the United States as it imports from the United States. It also has relatively few secure places to park its huge foreign-exchange reserves other than U.S. Treasury bonds and government-backed U.S. mortgage securities.

Thea Lee, an economist and policy director for the AFL-CIO, said the concern over an incipient trade war was overblown and called China's reaction "blustering."

"The Chinese government is trying to raise the rhetoric and scare off the U.S. We should not be scared off," she said. "We are within our rights. . . . It's not the beginning of a trade war."

From 2004 to last year, the number of Chinese tires imported in the United States more than tripled and their share of the U.S. market rose from 5 percent to 17 percent. Over the same period, the share of the U.S. market served by U.S. factories declined by a corresponding amount. More than 5,000 U.S. jobs were lost.

Opponents of the tariff say the U.S. industry's shrinkage is unrelated to the surge in Chinese imports. U.S. manufacturers, they say, have strategically moved into pricier, more profitable tires, shifting production of cheaper tires overseas. Yao Jian, a Chinese Commerce Ministry spokesman, said, "Four U.S. companies have tire production operations in China and account for two-thirds of exports to the U.S. The tariffs will have a direct impact on them."

Under the so-called "421 clause" that China agreed to as part of its bid to gain admission to the World Trade Organization, the United States does not need to prove unfair trade practices.

Bad Timing?

But other observers said the timing was particularly bad, regardless of the case's merits. "They may have the basis for doing this, but the point in my mind is not the legality but the overall political impact and the message this gives the world," said Dadush of the World Bank. "Over the last several months, Chinese imports are exploding and thank God for that because that's holding up all of Asia and having a good impact on the rest of the world." By contrast, he said, U.S. imports are declining.

Moreover, globally, new requests for protection from imports in the first half of 2009 are up 18.5 percent over the first half of 2008, according to the World Bank-sponsored Global Antidumping Database, organized by Chad P. Bown, a Brandeis University economics professor. That increase follows a 44 percent increase in new investigations in 2008.

On Tuesday, Obama is scheduled to address the AFL-CIO's annual convention. Some analysts said that the tire tariffs were a political favor to trade unions, whose support Obama needs for health-care reform and who backed Obama in the 2008 election. Gerard dismissed the idea that the tire tariffs were political payback. The people who say that "are smoking something," he said.

Some observers said Obama might follow the Bush administration, which initially seemed to adopt a tough stance on trade. In March 2002, President Bush imposed tariffs on foreign steel, but later he backed off and rejected proposals to impose trade sanctions for other products.

"He pulled the plug on us because he didn't think we were grateful enough," Gerard said. "He didn't have the guts to enforce the law. He basically invited the Chinese to keep doing the same thing."

Whoriskey reported from Pittsburgh.


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