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US tariffs on Chinese tires spark concerns over protectionism
Updated: 2009-09-17 17:58

US President Barack Obama's decision last weekend to impose punitive tariffs on tires imported from China has triggered concerns about the rise of protectionism in the lead-up to the Pittsburgh G20 meeting later this month.

Australian Trade Minister Simon Crean described the timing of the decision as "dreadful," saying "it sends the wrong signal, we must be stepping back from measures that invite retaliation."

He said the decision would make it more difficult to achieve progress at the G20 toward finalizing the Doha Round trade talks, according to the Sydney-based newspaper the Australian Wednesday.

Obama's order raised tariffs for three years on Chinese tires -- by 35 percent in the first year, 30 percent in the second and 25 percent in the third.

The decision was also opposed by the US tire industry. The Tire Industry Association (TIA) said it was "deeply disappointed" with the decision.

The TIA is an international association representing all segments of the tire industry, including those that manufacture, repair, recycle, sell, service or use new or retreaded tires, and also those suppliers or individuals who furnish equipment, material or services to the industry.

The TIA believes tariffs will "price" low-cost tyres "out of reach for many customers and will lead to a tightening in the remaining supply of lower-cost tires," according to a TIA press release.

"Also, given that lower-cost tires imported from China help those most vulnerable in this current economy... We are deeply concerned that many consumers may delay or even defer replacing their tires when necessary, thus creating a potential safety hazard on America's roads," added the TIA.

"TIA believes this was a politically motivated decision that will end up costing more jobs than it saves," said TIA Executive Vice President Roy Littlefield.

GITI Tire (USA) Ltd, a member of the American Coalition for Free Trade in Tires, has already issued an official statement expressing its disappointment.

"This decision will cost many more American jobs than it will create," said Vic DeIorio, GITI's executive vice president. "It will also increase costs for, and take away choices from, American consumers."

Bob Ulrich, editor of US magazine the Modern Tire Dealer, wrote in an article titled "President Obama announces tariffs in the dark of the night" that "it was a hot button issue, one with potentially serious ramifications."

Neena Shenai, an adjunct scholar at the American Enterprise Institute,  warned Wednesday in a commentary article that "American consumers and downstream US tire businesses will suffer, and trade relations with China will be needlessly damaged."

Hankook Tire Co, the largest overseas tire maker in China, fell the most in almost eight months in Seoul trading after the United States slapped special tariffs on Chinese tires.

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The price of the company's shares dropped 8.8 percent in Seoul trading up to Wednesday, the biggest decline since January 20, to close at 20,200 won. Aeolus Tyre Co, the largest Chinese-listed tire maker by market capitalization, also fell 3.3 percent in the Shanghai stock market.

"There is concern the industry could be affected by the US decision," said Kevin Lee, an analyst in Seoul.

China on Monday asked for talks with the United States on the tire tariff issue in accordance with the World Trade Organization (WTO) dispute settlement process.

On Sunday, China launched anti-dumping and anti-subsidy investigations into US chicken products and an anti-subsidy investigation into automobiles produced in the US

Chinese Ministry of Commerce Spokesman Yao Jian said China firmly opposed trade protectionism and discouraged the use of trade remedy measures.

China wanted to have talks and negotiations with the US side on the friction and to practically promote the development of bilateral and multilateral trade relationships, said Yao.

Eswar Prasad, professor of trade economics at Cornell University, warned of an escalation of the disagreement.

"These protectionist measures, some of which amount to domestic political posturing rather than substantive restraints on trade, could easily ratchet up into a full-blown trade war and inflict serious economic damage on both countries," he said.

An article by the Editorial Board of the Christian Science Monitor said it is likely that Mexico or other low-wage countries will simply step up their tire exports to the United States and fill a void left by fewer or more expensive Chinese tires.

"In the end, Americans who have worked in tire factories will need to retrain themselves for higher skilled jobs in emerging fields where the United States is more competitive. Meanwhile, this tariff means US consumers will pay more for tires," said the article.

"If the tariff ends up being for naught, then it is worth asking if Obama's action hurts the American interest in free trade by sending the wrong signal to other countries," it added.

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