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Obama to impose tariffs on Chinese tires

President Barack Obama has slapped punitive tariffs on all car and light truck tires entering the US from China in a decision that could anger the strategically important Asian powerhouse but placate union supporters important to his health care push at home.

business Updated: Sep 12, 2009 10:59 IST

President Barack Obama has slapped punitive tariffs on all car and light truck tires entering the United States from China in a decision that could anger the strategically important Asian powerhouse but placate union supporters important to his health care push at home.

Obama had until Sept. 17 next week to accept, reject or modify a US International Trade Commission ruling that a rising tide of Chinese tires into the US hurts American producers. A powerful union, United Steelworkers, blames the increase for the loss of thousands of American jobs.

The federal trade panel recommended a 55 percent tariff in the first year, 45 percent in the second year and 35 per cent in the third year. Obama settled on slightly lower penalties an extra 35 per cent in the first year, 30 per cent in the second, and 25 per cent in the third, White House press secretary Robert Gibbs said on Friday. "The president decided to remedy the clear disruption to the US tire industry based on the facts and the law in this case," Gibbs said.

The decision was announced by the White House late on Friday evening, a time when significant news often gets less attention because of the hour and the upcoming weekend.

The timing was awkward for another reason, coming as US officials are working with the Chinese and other nations to plan an economic summit of the Group of 20 leading rich and developing nations in Pittsburgh, to be held Sept. 24-25. China will be a major presence at the meeting, and the United States will be eager to show it supports free trade.

Many of the nearly two dozen world leaders Obama is hosting have made strong statements critical of countries that protect their key industries. Obama, too, has spoken out strongly against protectionism, and other countries will view his decision on tires as a test of that stance.

Governments around the world have suggested the United States talks tough against protectionism only when its own industries are not threatened. US rhetoric on free trade also has been questioned because of a "Buy American" provision in the US stimulus package.

The decision could have ramifications in other high-priority areas too.

The White House badly needs Chinese help to confront climate change, nuclear standoffs with Iran and North Korea and global economic turmoil. China is the world's third-largest economy and a veto-holding member of the United Nations Security Council. Beijing says the duties would be a violation of global free-trade principles and has complained about US protectionism. And Roy Littlefield, executive vice president of the Tire Industry Association, which opposes the tariff, said it would not save American jobs but only cause tire manufacturers to move production to another country with less strict environmental and safety controls, less active unions and lower costs than the United States.

At the same time, Obama needs support from unions also a key backer of the Democratic Party in elections as he makes a high-stakes push for national health care legislation. To reach a compromise on health care, Obama may need concessions from pro-labor Democrats who support a strong stand against China. The steelworkers union brought the original case in April, accusing China of making a recent push to unload more tires ahead of Obama's expected action. The union says more than 5,000 tire workers have lost jobs since 2004, as Chinese tire overwhelmed the US market.

The US trade representative's office said four tire plants closed in 2006 and 2007 and three more are closing this year. During that time, just one new plant opened. US imports of Chinese tires more than tripled from 2004 to 2008 and China's market share in the US went from 4.7 per cent of tires purchased in 2004 to 16.7 per cent in 2008, the office said.

"When China came in to the (World Trade Organization), the US negotiated the ability to impose remedies in situations just like this one," US Trade Representative Ron Kirk said. "This administration is doing what is necessary to enforce trade agreements on behalf of American workers and manufacturers. Enforcing trade laws is key to maintaining an open and free trading system."

The new tariffs, on top of an existing 4 percent tariff on all tire imports, take effect Sept. 26.

Obama's action marks a shift from the Bush administration, which was routinely criticized for being too delicate in confronting Beijing's alleged trade violations. Obama promised during his presidential campaign that he would do it differently. For the Chinese government, the tire dispute threatens an economic relationship crucial to China's economic growth. There was speculation before the decision that new tariffs could produce public pressure on Beijing to retaliate, potentially sparking a dangerous trade war.

Soaring Chinese imports of American chicken meat already have been mentioned by Chinese state media as a possible target. Beijing also could sell some of its extensive holdings of US Treasury debt, which could unsettle markets.