International Trade Solutions has been following the growing trade disputes between the EU and China (see for example Latest Anti-Dumping Duty News: Weedkiller & Ironing Boards). However, this week we turn our attention to a growing rift between China and the US that has developed into a World Trade Organisation dispute.
What has happened?
President Obama recently stated that the US would impose 35% tariffs on Chinese tyres in a bid to protect domestic producers from Chinese imports. This 35% will be added to the already existing 4% tariff on Chinese tyre imports. China responded by filing a WTO dispute case against the tariffs arguing that they were protectionist and in violation of WTO rules.
Why has the US imposed these duties?
The US interestingly has not imposed the tariffs on the basis of Chinese trade violations but rather is making use of a “transnational product-specific safeguard” clause that was written into the terms of China’s accession to the WTO in 2001 (Section 421 of the US Trade Act). This particular measure provides for a buffer against potential import surges for WTO members that might struggle to adjust to China’s new position in the world economy. This measure is due to expire in 2013.
The United Steel Workers (a labour group based in Pittsburgh) requested in April that the US International Trade Commission (ITC) investigate whether Chinese tyre imports met the criteria for “market disruption” needed to invoke Section 421. The argument was that Chinese tyre imports more than trebled between 2004 and 2008 and that US tyre production declined by 25% over the same period. The ITC interestingly agreed with the labour group and called on tariffs to be imposed for three years (starting at 55% and decreasing by 10% each year!) What is even more interesting is that Section 421 of the US Trade Act gives the US President the discretion to authorise any safeguard measures and George W. Bush actually rejected four requests to do so!
One must take into account that President Obama relied heavily on union support during his election campaign (which is now particularly important with regard to his proposed health reforms) and that two major US tyre companies, Cooper Tire and Rubber Company and Toyo Tires actually oppose these measures arguing that they would stifle their operations in China.
What may the ramifications be?
There is disagreement about what the ramifications of this dispute may be. Some believe that the dispute could spread to other areas of US-China trade as China announced that it was launching anti-dumping investigations of US automobiles and poultry products. Others, however have argued that the duties will have limited effect and that the issue is a politically blown up stage show.
China and the US are each others’ second largest trade partners (the EU being China’s first and Canada being the US’s first). Chinese exports to the US account for 6% of China’s total economic output, 13 times the share of the US economy represented by US exports to China. However, China holds vast amounts of US debt and a massive sell off of US Treasury bonds could significantly harm the US economy.
Why is this relevant to traders in the EU?
As International Trade Solutions has been reporting, the EU and China are becoming involved in a number of economic disputes and Chinese products have been the subject of a number of anti-dumping duties and anti-dumping duty investigations. With the G20 meetings coming up shortly, a US-China dispute could easily involve the EU at a time when the world economy is still vulnerable. Although this particular issue may not actually develop into a full blown US-China trade war, it does however highlight the growing concern among Western economies that China is overly-aggressively asserting itself on the world market and is deliberately dumping its products at artificially low prices that are having massive effects on Western producers.
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