BEIJING — As Beijing launched a case Monday against new U.S. tariffs on Chinese tires, President Barack Obama defended the duties, saying trading agreements must be enforced in order for trading systems to work.
The conflict adds to a series of disputes over poultry, auto parts and other goods that have threatened to strain relations as Beijing and Washington co-operate on complex issues including the economic crisis and North Korea.
It comes as the two world powerhouses prepare for a global economic summit.
News of China’s filing with the World Trade Organization sent Asian markets down two per cent and more Monday on worries about the potential impact on the global economic recovery. But investors appeared to take a less dire view of the dispute as the day wore on. European markets were down marginally by late in the trading and U.S. markets were flat at middayß.
While China’s quick response threatened to escalate the battle, many private economists said they expected both sides would find a way to avoid a full-blown trade war that would harm producers in both countries.
“The big message from China to the United States is think twice, think three times before repeating this kind of relief for a U.S. industry because if you do this again, we are going to hit you again,” said Gary Hufbauer, a trade expert at the Peterson Institute, a Washington think-tank .
Economists said that both nations have too much at stake economically to allow the dispute to get out of control.
The United States, as the world’s largest economy, represents a huge export market for Chinese products while China is the largest holder of U.S. Treasury securities at a time when U.S. government debt is exploding as the recession and efforts to stabilize the banking system have sent the federal imbalance to more than $1 trillion in the current budget year.
In a speech Monday in New York, Obama said he did not act to be provocative or to promote protectionism. He said expanded trade and new trade agreements are essential to U.S. economic growth and enforcing such agreements is part of maintaining an open and free trading system.
The Chinese complaint to the WTO in Geneva triggers a 60-day WTO process in which the two sides are to try to resolve the dispute through negotiations. If that fails, China can request a WTO panel to investigate and rule on the case.
The U.S. tariffs are “a serious case of trade protectionism, which China resolutely opposes,” said a deputy commerce minister, Zhong Shan, quoted by the official Xinhua News Agency.
Beijing’s response to Friday’s tariff decision shows the urgency communist leaders attach to maintaining exports, employment and social stability. Officials have said as many as 30 million labourers lost factory jobs last year as exports plummeted. Many have found new employment, but the government is anxious to avert more job losses.
Chinese leaders are sensitive to public anger, which is easily triggered by suggestions that foreign nations are treating China unfairly. Frustration over the tire tariffs has been fanned by news reports citing a rubber industry group that said as many as 100,000 jobs could be affected and losses to Chinese producers could top $1 billion.
But the decision to go through the WTO could reflect China’s desire to confine the dispute and prevent it from disrupting relations with Washington.
Beijing has sometimes retaliated in disputes with the United States in the past by slowing or breaking off talks on other matters. But now the two governments are co-operating on a wide array of issues that they both deem critical, including the global slowdown, climate change and ending North Korea’s nuclear program.
Washington and Beijing are key participants in a summit of the Group of 20 leading economies planned in Pittsburgh on Sept. 24-25 to discuss efforts to end the worst global downturn since the 1930s. Both sides want the meeting to be a success.
Obama approved the tire duties to slow the rapid growth of U.S. imports of Chinese-made tires blamed for the loss of thousands of American jobs.
The White House said Obama acted under a provision in the U.S.-Chinese agreement on Beijing’s accession to the WTO that allows Washington to slow the rise of Chinese imports to give time to American industry to adjust.
The United Steelworkers brought the tire case in April and said annual Chinese tire exports to the United States tripled from 2001 to 2004 to 41 million. It said more than 5,000 tire workers have lost their jobs since 2004 and said annual imports should be capped at 21 million.
After a U.S. panel recommended tariffs, Beijing launched an unusually high-profile diplomatic offensive to head them off, sending a deputy commerce minister to Washington in August to lobby the White House.
Obama’s order raised tariffs for three years on Chinese tires — by 35 per cent in the first year, 30 per cent in the second and 25 per cent in the third.