U.S. Hikes Tariffs on Chinese Tires, Beijing Initiates AD/CV Cases
The White House announced Sept. 11 that the U.S. will impose a three-year schedule of increased tariffs on all imports of passenger vehicle and light truck tires from China. The decision to impose the so-called Section 421 China-specific safeguard came in response to allegations by a labor union earlier this year that a surge in imports of Chinese tires had caused market disruption. Several days after the announcement China launched trade remedy cases against certain U.S. products, prompting fears of a bruising bilateral trade war, but the situation may not be as grim as it has been portrayed.

The increased duties on Chinese tires, which will be levied in addition to the existing 4% duty, will be imposed with respect to goods entered, or withdrawn from warehouse for consumption, on Sept. 26. They will start at 35%, falling to 30% a year later and then 25% after two years. Tires that will be subject to the higher tariffs are new pneumatic tires, of rubber, of a kind used on motor cars (except racing cars) and on-the-highway light trucks, vans and sport utility vehicles, provided for in HTSUS 4011.10.10, 4011.10.50, 4011.20.10 and 4011.20.50.

The safeguard decision was welcomed by the United Steelworkers, the AFL-CIO and a number of senior Democratic leaders. They asserted that it will help preserve U.S. jobs and level the playing field with China, which they have frequently accused of unfair trading practices that have damaged U.S. manufacturers. Congressional Republicans and other business groups took the opposite view, warning that the safeguards could cause the loss of more jobs than they save, lead to Chinese restrictions on U.S. exports, and embolden other countries to impose protectionist measures of their own, all of which could hinder efforts to halt the worst economic slide of the post-war era.

But a closer analysis of the decision and the reactions to it reveal some interesting insights. The decision was largely expected given that it was requested by a labor union, a constituency that played an important role in the president’s election and whose support he needs on domestic priorities like health care reform. However, the fact that the safeguard duties imposed start out quite a bit smaller than those recommended by the International Trade Commission suggests that the White House also wanted to address the concerns of those who would be adversely affected by higher prices for Chinese tires, including tire retailers and consumers. If that is in fact the case, the flood of additional Section 421 petitions from domestic industries such as textiles and steel that some believe will follow the tire safeguard decision may not meet with the same success. It is perhaps instructive to recall that at the beginning of his term former President George W. Bush moved to limit certain steel imports, in part to advance other items on his agenda, then removed them a year or so later and subsequently rejected every Section 421 case filed with his administration on the grounds that they were not in the national interest. Given the importance of Chinese cooperation on larger economic and national security issues and the benefit of low-priced imports from China to still-struggling U.S. consumers, it is not inconceivable that President Obama could pursue a similar course.

Fears of a tit-for-trade trade war between Washington and Beijing may be overstated as well. Chinese officials spoke sharply against the safeguard decision, calling it “a grave act of trade protectionism” that violates commitments the U.S. made against such moves earlier this year, but their only direct response was a request for consultations with the U.S. at the World Trade Organization, where observers say China may point to a decline in U.S. imports of Chinese tires in arguing that the safeguard was imposed contrary to WTO rules. Chinese officials also announced the initiation of antidumping and countervailing duty cases against

U.S. “car products and chicken meat” but gave no further details and emphasized that this action was not related to the tire tariffs. In addition, the choice of these two products appears to be designed more to send a warning than inflict harm, as U.S. exports of auto parts to China are relatively small and U.S. agricultural interests have been more concerned with maintaining access to the Chinese market for pork and soybeans.