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August 28, 2009

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China tries diplomacy in resolving US tire tiff

CHINA'S deputy minister of commerce, Zhong Shan, paid an unscheduled visit to the United States last week to lobby against a US proposal for punitive duties on Chinese tire exports.

Though the outcome of the mission isn't known, the trip reflected China's determination to resolve trade disputes through negotiation, not confrontation.

The administration of US President Barack Obama will have to make a decision on the tire issue before September 17. The US has proposed raising the levy on Chinese exports of passenger and light truck tires into the US from the current 3 percent to as much as 55 percent.

The Chinese are closely following the issue because it affects the jobs of nearly 100,000 people in China and reflects a growing trend of protectionism amid the global economic recession.

"How China responds will set an example for other cases, which are likely to multiply as countries seek to protect their own economies and employment during the economic downturn," said Xue Lei, a researcher at the Institute for Economic Comparative Studies under the Shanghai Institute for International Studies.

Victims of politics

"Chinese tire exporters have fallen victim to US politics," he said. "A scapegoat must be found for job losses in the US, but the real cause of unemployment is the economic downturn triggered by the financial crisis, not Chinese exports."

The dispute over tires began in April when the United Steelworkers of America, the union that represents tire workers, filed a petition alleging that Chinese tire imports had tripled between 2004 and 2008, resulting in the closure of US plants and the loss of 5,100 jobs.

The petition was based on special safeguard provisions China accepted in 2001 as part of its entry to the World Trade Organization.

"American workers are struggling to make it through the worst economic crisis in 80 years," Leo Gerard, the United Steelworkers' international president, said on the union's Website. "Our tire industry is collapsing under the weight of 46 million Chinese tires entering our shrinking market annually."

On June 29, the US International Trade Commission agreed with the union, ruling that a three-year increase in duties should be slapped on tire imports from China.

China isn't buying the argument.

"The accusation by the US is groundless," Fu Ziying, a Chinese deputy commerce minister, said at a recent news conference.

"Indeed, Chinese tire exports to the US increased quickly from 2004 to 2008, but during the same period, profits of American tire manufacturers also doubled," he pointed out. "The growth of Chinese tire exports did not result in concrete harm to the US. It is the global financial crisis that led to a recession in the US tire industry."

According to the Ministry of Commerce, there were 73 anti-dumping cases against China last year, accounting for 35 percent of the world's total. In the first half of this year, 15 countries have launched 60 anti-dumping investigations against China, up 11 percent from a year earlier.

About 100,000 people in China produced tires headed for the US market. From January to April of this year, Chinese tire shipments to the US shrank 25.7 percent due to the falling demand amid the economic downturn. The shipments accounted roughly for 15 percent of China's tire production and 12 percent of the US market.

But since the tire dispute intensified, exports from China to the US reversed the declining trend and picked up in growth in recent months, as American retailers piled up goods to counter the possible price hike, officials at the China Rubber Industry said, without giving further details.

As with most trade disputes, taking sides is a game of winners and losers. Tire distributors and some producers in the US are siding with China.

Job losses possible

Chinese-made tires are mostly lower-priced products and do not compete directly with US-made tires, distributors told a hearing earlier this month. An increase in the trade tariff against Chinese tires will cause more job losses in the US and additional expenditure for American consumers, they claimed.

"American tire makers are not producing entry level tires, which are the subject of this trade dispute," Jim Mayfield, president of Del-Nat Tire Corp, which represents small and independent tire distributors in the US, was quoted as saying by Xinhua news agency.

He said for the past 15 years, major US producers had focused on more profitable and better performing tires instead of those serving the low end of the market.

Distributors like himself rely on foreign suppliers to cater to that market, he said.

"They tell me we have gotten out of that business and we are not going back," Mayfield said.

Cooper Tire & Rubber Co, the second-largest US tire maker, said it opposed imposing punitive tariffs on Chinese tires as it would prevent them from importing low-cost tires that they make in China to complement the premium tires they make in the US.

"It could impact our operations in China," Cooper's chairman and chief executive officer, Roy Armes, told Shanghai Daily last week. "We realize that we have to compete on a global basis and to have free and fair trade that allows the market to grow and to be successful."

Thomas Prusa, a professor of economics at Rutgers University, said if higher tariffs make Chinese tire exports unprofitable, for every job saved or recreated at an American tire factory, up to 25 jobs in the distribution sector could be lost.

Prusa said the ITC ruling cast only a narrow view on the job losses in the US tire industry and lacked consideration of the overall impact to the US economy. He estimated that US consumers would have to shell out at least US$600 million more if they were forced to buy more expensive US-made tires.

Xue at the Shanghai Institutes for International Studies said any Obama acquiescence to the US tire makers' claim would be a blow to Sino-US trade relations.

"A good bilateral trade relationship is important for China as well as the US," Xue said. "Any rash decision may cause serious losses in both countries, even trade wars," he said. "Luckily, in this case, the Obama administration has the power to make a final ruling, and Chinese senior officials have tried to do what they can to have the decision turn in their favor."


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