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WTO to investigate Chinese tire tariffs

According to documents published today, the World Trade Organization is about to get involved in the ongoing US-China tire tariff dispute. The WTO investigation is the result of an appeal filed by China immediately after the Obama administration approved double digit tariffs on Chinese tire exports for the next three years. Since then, trade relations have gotten rocky as China retaliated with tariffs of their own on US products like chicken, industrial acids, and nylon. In return, the US imposed tariffs on steel pipes imported from China, and has begun looking into allegations that China has been selling below cost, or “dumping” products in the US. In short, things are getting ugly.

The WTO will formalize the panel at a meeting tomorrow (January 19, 2010). The three-judge panel will investigate whether the U.S. respected WTO rules in levying the so-called “safeguard” tariffs on Chinese tires. As part of the agreement to join the WTO in 2001, China had agreed to allow other member counties to impose safeguard tariffs on Chinese products if the flow of imports significantly affected domestic factories and employment. The US maintains that this is exactly what is happening with Chinese tires as the domestic auto market struggles amidst a global downturn.

According to trade data, it seems like the US could make a strong case. China gained a 17% market share in the US between 2004 and 2008, as their tire imports rose from $5.1 billion to $9.3 billion. At only $50 a tire, it was growing easy for Chinese products to undercut their domestic American counterparts. Seven US tire plants closed during this time period, and nearly 5,000 positions in the tire industry disappeared.

The WTO’s investigation will continue for 9 months before a judgeship is issued. If the panel finds the US unfairly imposed the tariffs in opposition to WTO agreements, China would be allowed to impose tariffs of their own to recoup their losses. The US could appeal the verdict, meaning that this particular investigation is far from being over.

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Suprise, surprise: Chinese tire exports fall to 4-year low

This headline should be pretty obvious to anyone following the Chinese tire tariff situation. After the U.S. imposed a 35% import tax on all Chinese-manufactured tires, Chinese tire exports dropped a whopping 37.5% in October. The tariff went into effect on September 26, 2009.

According to the country’s General Administration of Customs, China exported 240 million new tires in the first 10 months of 2009, a 9.6% drop from the same time period in 2008. The export value of the tires dropped 10.5% year-on-year to $6.2 billion .The average price declined 1% year-on-year for the average tire.

It appears that the tariff is achieving part of its goals, but whether or not this will cause any issues in other areas of US-China trade relations still remains to be seen.

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China concerned tire tax could set a dangerous precedent

Now that the Obama administration has made its decision to impose a tax on all wholesale tires being imported from China, Chinese ambassadors continue to voice their concerns about the future of US-China trade relations. Most recently, an ambassador from China explained that the tire tax was “setting a dangerous precedent” that would encourage other struggling US industries seek similar protections.

“We regret that it happened because it’s unfair, it’s unnecessary and it’s of a protectionist nature,” Zhou Wenzhong told reporters.

Wenzhong and other critics of the tax feel that this measure will do nothing to boost jobs in the US, as the low-cost tires that are affected by the measure are not currently being manufactured in the US. Some speculate the tax will do nothing except force consumers to pay more for tires. The reality of the situation remains to be seen, but in the mean time both sides are hoping that the situation won’t erupt into a full-scale trade war. Wenzhong told reporters he doesn’t think this is likely, but actions will speak louder than words when other industries start lobbying the administration for protections of their own.

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