Tariffs on Tires: The First Shot Across the Bow

Bowing to pressure from organized labor, the Obama Administration has fired the first shot across the bow in what could potentially develop into a nasty conflict with China, America’s largest trading partner and the single largest investor in the U.S. economy.

In the Opinion section of its weekend edition, The Wall Street Journal reported that: “The White House leaked word late Friday evening that the U.S. will impose a 35% tariff on imported Chinese tires used by millions of low-income Americans.” The reaction of the paper’s editors: “We wonder if President Obama understands the political forces he’s unleashing with this blatant protectionism.”

The Wall Street Journal’s editors explained:

Mr. Obama is setting a precedent in the tire case because he is applying a previously unused part of the trade law known as Section 421. This allows U.S. industries or unions to seek protection from “surges” of Chinese imports, with a lower burden of proof than normal anti-dumping or countervailing duty cases. President Bush nixed the four Section 421 petitions that reached his desk, citing the national economic interest. Domestic lobbies had lobbied Mr. Obama hard to reverse that pattern and set a new protectionist precedent.

This threat will now be realized as other industries pursue the 421 solution to reducing competition. Some of the product categories that have seen import surges include shoes, lawn mowers, television monitors, hearing aids, musical instruments like keyboards and guitars, women’s underwear, blouses and t-shirts, according to Greg Rushford, editor of a newsletter on trade policy.

Various sources over the weekend have confirmed that the tariff will, in fact, be imposed, and China has already reacted strongly. Ministry of Commerce spokesman Yao Jian said that China strongly opposes the US decision to impose special protectionist tariffs on tire imports from China. Yao said China has held negotiations with the U.S. over the case but the U.S. still sticks to this decision, which is serious trade protectionism, with which China is strongly dissatisfied.

But, it’s the weekend, and Yao’s statements are only the beginning. Expect strong retaliatory measures by China in the coming weeks — and not just in trade matters. As Secretary of State Clinton, Secretary of the Treasury Geithner and Speaker of the House Pelosi have all taken great pains to emphasize, the relationship between the United States and China is broad and covers a wide range of agenda items. While some countries might limit their reaction to a trade issue to a trade-related response, the Obama Administration will find that China operates differently. Strong protectionist measures aimed at China pose a direct threat to the Chinese economy, and China will treat the tariff as such. Washington will find its dialogue with Beijing becoming frosty on all issues.

Jon Huntsman, the newly appointed ambassador to China from the United States, had hoped to “take U.S.-China relations to new heights.” He and President Obama now have their work cut out for them. This latest action should make for an interesting G-20 meeting in Pittsburgh later this month where leaders from both countries will be present, as well as for an interesting visit to Beijing by President Obama in November. China’s leaders understand that actions, not words, are the only things that count. They have been carefully following the rhetoric but have been waiting patiently for tangible signs as to how the relationship between the world’s two most powerful countries will play out under the Obama Administration. They just got their first true signal.

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