Update2: China's Not Messing Around on Tires

(Originally published on Aug. 26. Latest info at bottom)

Two weeks ago, I posted on an important upcoming trade decision on Chinese tire imports (under Section 421 of US trade law - or "China-specific safeguards"). The decision's important because it's going to be one of the first real tests of Obama's trade policy, one in which he must choose between--

• his labor union supporters, particularly those in the USW; and
  

• the national economic interest, American trade and foreign policy, and averting a potential trade war with an increasingly agitated China.
  

Tough call, I know! But seriously, on that last point, I noted how the several conspicuous Chinese warnings on the President's pending tires decision meant that this little case had "all the makings of a serious bilateral conflict." Well, today comes further affirmation of my prediction (please hold your applause). According to China Daily, several Chinese trade experts warned yesterday that if Obama sides with the USW (who's pressuring the bejeebus out of him to do so), China might retaliate in kind:

China is expected to take retaliatory measures if US President Barack Obama agrees next month to a plan to impose tariffs on some Chinese-made tires, experts said Tuesday.

...

Experts said the outcome is uncertain despite strong evidence that Chinese tires have not disrupted the American market, as well as efforts by the Chinese government during the past three months to stave off a US-imposed tariff.

"The prospect is not very positive, and we have to be ready for the worst," said He Weiwen, a council member of the China Society for American Economy Studies.

"China's government should not tolerate unreasonable and unfair behavior by the US and must fight back firmly and quickly," He said.

The USTR proposal is expected to be submitted on Sept 2, and Obama is expected to decide the case before Sept 17.

...

Last Wednesday, under the leadership of Vice-Minister of Commerce Zhong Shan, a team headed for the US to consult with authorities.

The results were not positive, an unnamed official from the ministry's bureau of fair trade of imports and exports said.

"The Obama administration is under great pressure from labor unions and other groups," the official said.

Experts said China should prepare to retaliate if the US approves the tariffs.

"If the US says no to tires from China, China could take measures to limit automobile imports from the US," He said....

So the US hits Chinese tires, and then China attacks US automobiles. And everyone suffers.

Rinse. Repeat. And...... trade war! (ugh)

I expect a lot more of this noise from China and the US unions in the days surrounding the Sept. 2 USTR Report, and it'll only get louder until the President makes his decision on (or before) the 17th.

Hopefully, the President will make the right call* and dismiss the tires case, so it'll stay a war of words only.

*Chinese retaliation aside, keep in mind that tire import protection would actually harm the US economy, lead to tons of copycat cases on other Chinese products, and totally undermine US foreign and trade policy. This is a no-brainer's no-brainer.

UPDATE2: Chinese Industries Urge Their Government to Retaliate, If Necessary (August 28):

..Fan Rende, director of the China Rubber Industry Association (CRIA), said CRIA had spoken to Premier Wen Jiabao, asking that the government attach importance to the case and take countermeasures. CRIA noted that if Obama supports special protective measures against its tires, the employment of over 100,000 Chinese workers may be affected.

Several trade associations and chambers of commerce are worried that if Obama supports the tire case, other US industries may launch similar trade remedy measures against Chinese products. They note that US industries have hired legal teams to track the progress of the tire case and research the use of special safeguard measures in their industries.

One proposal is that, if Obama agrees to new duties, the government should immediately limit automobile imports from the US.

Liu Yinan, vice director of the China Chamber of Commerce for Metals Minerals & Chemicals (CCCMMC), worries that the US may launch a protective suit against its products. Iron and steel may be the first victim.

The China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME) frets that it might become the next target. Among the six rejected special duty cases over the past eight years, two were aimed at China's machinery and electronic products.

CCCMMC and CRIA are demanding that China adopt countermeasures if the tire case reaches an unjust verdict. The MoC has received proposals, but has not disclosed whether it is considering any counter-program.

Some have suggested that if China draws up a list for trade retaliation, those products in large proportion in Sino-US trade such as soybeans should be selected. Imports of soybeans have roiled the agricultural sector for months. Between January and July, China's soybean imports increased by 27.7%. The Heilongjiang Soybean Association (Heilongjiang Province is the main production area of soybean) has been protesting to the MoC to launch anti-dumping investigations.

...

Domestic analysts believe that China's President Hu Jintao should take action at this critical time. "It is far from enough to rely only on the MoC after the report from USTR is sent to the White House," says Zhou Shijian, senior researcher for Sino-US Research Center of Tsinghua University, suggesting that senior officials from the State Council should express their concerns on the issue through appropriate channels.

...

The last time China took retaliatory measures was during the "garlic trade war" against Japan and South Korea in 2000 and 2001. Japan and Korea initiated restrictive measures against Chinese garlic, in answer to which China limited imports of mobile phones and polyethylene from South Korea and automobiles, mobile phones, and air-conditioners from Japan, eventually forcing the two to make concessions. But since China's WTO accession at the end of 2001, there has been no resort to trade war.