Sunday, September 13, 2009

China Scorned U. S. For Tire Duties

. Sunday, September 13, 2009

By stockOzone team

Chinese media and officials have heaped scorn on a U.S. decision to impose special duties on Chinese-made tires, extending Beijing's warnings that the move may fuel trade friction as global growth struggles to revive.

U.S. President Barack Obama announced the safeguard duties on tire imports from China on Friday, a decision the White House said was meant to stifle disruption from cheap Chinese imports.

Experts said the dispute appeared likely to intensify sparring between the world's biggest and third-biggest economies, but was unlikely to spark a full-scale trade war.

China responded swiftly and vehemently to the decision, saying it may complain to the World Trade Organization and then announcing its own anti-dumping investigations of motor vehicles and chicken products from the United States.

On Monday, Chinese state media issued fresh denunciations of Obama's decision, which will launch the additional duties of 35 percent on Chinese-made tires from September 26, a day after the G20 summit of big rich and developing nations ends in Pittsburgh.

"Obama has undoubtedly chosen a dangerous gambit," said the International Business Daily, a Chinese-language daily issued by China's Ministry of Commerce.

"The Chinese business world that has been wronged by this will not sit still on this, and even tougher contention between China and the United States may be looming."

Mei Xinyu, a trade expert with a think-tank under China's Ministry of Commerce, said Beijing wanted to warn Washington against making the two countries' huge trade flows more uncertain.

"The trade retaliation initiated by China was not intended to launch a full trade war in a fit of anger, but to contain protectionist tendencies in our trade partner, so that there is a stable and more predictable environment for developing international trade," Mei told the China News Service.

After the U.S. decision, share prices of Chinese tire makers plunged in early trade on Monday, led by major producer Double Coin (600623.SS).

Double Coin shares fell by their daily 10 percent limit to 19.01 yuan, while Guzhou Tire (000589.SZ) dropped 7.4 percent to 14.84 yuan.

CONTINUED TRADE FRICTION

Washington and Beijing have vowed to cooperate in seeking to revive global economic growth, but the tire dispute and Chinese counter-moves have exposed friction over trade, which could spill into the G20 summit that Chinese President Hu Jintao will attend, as well as Obama's scheduled visit to China in November.

The tire duty was the first time Washington has applied special "safeguard" provisions that Beijing agreed to before joining the World Trade Organization in 2001.

Over the weekend, the Chinese Ministry of Commerce said the U.S. tire duties could spark a "chain reaction of trade protectionist measures that could slow the current pace of revival in the world economy."

The Chinese Foreign Ministry, which usually keeps an arm's length from trade disputes, echoed that warning in a statement on Sunday.

"This is going to damage financial and trade cooperation between China and the United States," spokeswoman Jiang Yu said in a statement posted on the ministry website (www.fmprc.gov.cn).

Economists and experts said the dispute may add uncertainty to trade between the United States and China, but not threaten the economic underpinnings of their relations.

"While the impact of this trade-restricting measure by the US on the tire-making industry is serious, its macroeconomic impact is not enough to ... threaten the strategic relationship between the two countries," Qing Wang of Morgan Stanley Asia said in a research note.

"Any potential reaction on China's part would likely be an isolated move, the purpose of which is to register China's dissatisfaction with a view to pre-empting potential similar actions in other industries in the future."

The new duty of 35 percent will take effect on September 26 and adds to an existing 4 percent duty. The extra duty would fall to 30 percent in the second year and 25 percent in the third year.

The United Steelworkers union, which represents workers at many U.S. tire-making plants, filed a petition earlier this year seeking the protection. It said a tripling of tire imports from China to about 46 million in 2008 from about 15 million in 2004 had cost more than 5,000 U.S. jobs.

Mei, the Chinese trade expert, said the U.S. chicken and motor vehicle products targeted by Beijing's anti-dumping inquiries were roughly equal in value to China's tire exports to the U.S. -- about $2 billion a year.

The U.S. trade deficit with China totaled $103 billion in the first half of 2009, down 13 percent from last year but still a source of much ire in Washington.

Disclosure: Author does not own any of the stocks discussed here.





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