Sino-US Trade Under Test

The Sino-US tire special safeguard case ended with the US declaration to impose higher tariffs on the tires from China. China also launched the WTO dispute settlement system. The Sino-US trade is facing a big test now.

On the night of September 11, the US government declared to apply special safeguard measures for the tires from China to the USA. Since September 26, the US government has imposed 3 years’ punitive customs duty on the tires for cars and light trucks imported from China. The tariff rate was increased from previous 4% to 35% in the first year. Then it will be decreased to 30% and 25% in the second and third years.

According to the statistical data, the special safeguard measures, once taking effect, will bring 20 more tire-related enterprises into collapse. More than 100 thousand workers will lose their jobs. At the same time, 100 thousand US people engaged in the importation, transportation and selling of the tires from China may also be confronted with the danger of unemployment. In addition, now there are 4 US-funded tire manufacturers in China and three fourths of the tires exported to the USA come from them. The special safeguard measures can directly influence these US companies’ interests. Therefore, some experts said that the US president Barack Obama’s decision is harmful to both China and the USA.

The USA “Abused” Special Safeguard Measures

The Sino-US tire special safeguard case is the first case of the same kind after the Obama-led government ruled the USA in this January. It is also the first time that China received the sanction based on the special safeguard measures. According to these measures, if China exports a kind of product to a WTO member with so large an amount that can bring “direct serious damages” to the similar industry of that country, the country can use these special safeguard measures to set limitation on the Chinese product.

According to Sang Baichuan, researcher of WTO from Beijing-based University of International Business and Economics, the WTO allows its members to take measures to solve the trade disputes. The measures include anti-dumping, anti-subsidy, safeguard measures and special safeguard measures.

Yao Jian, spokesman for the Chinese Ministry of Commerce, said that this time the US government abused the special safeguard measures. According to him, the application of special safeguard measures has a clear condition – a product can damage or disrupt the importer’s market. In 2008, the exports amount of Chinese tires to the USA only grew by 2%. In the first half of this year, even a 15% negative increase occurred to the exports amount. Therefore, the tires from China can’t disrupt the American market. “During the negotiation, the Americans never brought forward feedback about whether the tires from China has disrupted the American market,” said Yao.

What’s noticeable is that the US tire manufacturers also opposed the use of special safeguard measures. Some US scholars thought that exerting restrictions on the importation of Chinese tires is also harmful to the USA. 68% of the tires from China to the USA are made by the US companies, like Goodyear.

On September 14, the Chinese government launched WTO dispute settlement procedure in response to the special safeguard measures on the Chinese tires. China required the USA to hold a negotiation under the WTO dispute settlement system. Yao Jian pointed out that this was the reasonable movement of China to protect its own benefits as a member of the WTO.

According to the rules of WTO, the USA must respond to the Chinese requirement of negotiation in ten days and start the negotiation within 30 days. The negotiation should not last longer than 60 days. If the negotiation failed to achieve any results, China can appeal to ask the WTO to organize a special team to conduct the investigation which will last 6 to 9 months. Then the WTO may deny the decisions of the US government based on the result of investigation. “The Chinese and US governments have been conducting the negotiation for several months. It seems hard to solve the problem with bilateral negotiation,” said Sang Baichuan.

Xu Wenying,deputy secretary-general China Association of Rubber

Defiance to China?

The United Steelworkers (USW) was the main advocator using special safeguard measures for the tires from China. According to the statistics of the USW, the value of tires from China to the USA increased by 295% from 2004 to 2008. During the same period, the market share of US domestic-made tires decreased by 25%. This made 5,100 employers of tire manufacturers in the USA lose their jobs. Therefore, in this April, the USW submitted the application to the US International Trade Commission to carry out special safeguard measures for the tires from China for “they have already disrupted the US tire market”.

But the truth is that the tires from China and the US domestic-made tires are targeted at different kinds of customers. The tires from China, with low prices, mainly focus on the American low-end market. This kind of tires is called “replacement tires”. The US domestic-made tires are mainly sold in the high-end market. Their prices are comparatively higher. Therefore, if the number of Chinese tires in the USA is restricted, the US domestic consumers have to spend more US dollars of about 600 million to 700 million in buying tires every year.

Tires may not be the only products influenced by the special safeguard measures. On September 17, the US steel companies applied to the US Department of Commerce, asking for imposing 90% anti-dumping and anti-subsidy tariff on the steel tubes from China. These steel tubes were mainly used for petroleum chemistry and oil refinery. The total value was 400 million US dollars.

According to the statistics of WTO, China has been the biggest target of anti-dumping probes for 14 years. From this January to June, 15 countries launched anti-dumping and anti-subsidy probes into the Chinese products, involving total value of 8.267 billion US dollars. The Chinese government or enterprises would rather complain about these probes rather than take real actions to strike back. This time, the US president Obama personally signed on the application of special safeguard measures, triggering the dissatisfactions of the Chinese government and enterprises.

“The made-in-China clothes, home appliances, metal products, toys and tires are the biggest targets of anti-dumping probes. The USA and EU continuously increased the quality and technology standards for those products. Some countries even use the trade barrier,” said Yao Jian.

Obama declared that the use of special safeguard measures for the tires from China is based on the rules of WTO, not the trade protectionism. He also denied that this is a kind of defiance towards China. However, Yao Jian pointed out that the USA, where the financial crisis happened, should assume bigger responsibility by using the trade protection measures less frequently but more carefully.

To deal with the frequent trade disputes, the expert said that the Chinese government, especially the Ministry of Commerce, should focus on the forewarning of those disputes to detect and solve them as early as possible. In addition, the Chinese enterprises should be more sensitive to these cases and respond to the relevant appeals more actively. Sticking together of the enterprises in the same industry is the most effective way. Now the companies of different industries in China are looking for alliance to deal with the anti-dumping probes.

An Imminent Trade War

One day after the US government’s declaration of special safeguard measures for the tires from China, the Chinese government launched the anti-dumping and anti-subsidy probes into the autos and chickens from the USA. This was considered as a “revenge” against the US government’s decision. According to the report from US media, Obama said that he would not like to see a trade war between China and the USA when there was twilight for the recovery of world economy.

Yao Jian said that the anti-dumping probes into the autos and chickens from the USA conform to the rules of WTO. “Now, we are making relevant evaluations. Once the probes are officially started, we will open the details to the public according to the relevant laws and regulations and work out a reasonable decision based on the truth.” He added that the Chinese government would stick to having a negotiation with the US government on the Sino-US tire special safeguard case.

“This will be a tough battle,” said Yao. According to him, the Chinese Ministry of Commerce will support the development of domestic tire industry in three aspects. Firstly, relevant negotiations with the US side will be continued; secondly, the Ministry of Commerce will cooperate with the Ministry of Industry and Information Technology and the China Association of Rubber to work out the measures of supporting the Chinese tire industry; thirdly, it will encourage the tire companies in China to further consummate their products structure and improve their technological level.

According to Deng Yali, secretary-general of the China Association of Rubber, many tire enterprises in China have already required the government to increase the export tax rebate to solve their emergent problems.

A general manager of a Chinese domestic tire enterprise said that the amount of Chinese tires exported to the USA will be greatly reduced. Therefore, the company hopes for the increase of export tax rebate for tires to reduce their loss. In addition, the Chinese tire companies decided to heighten the prices of tires exported to the USA, making the American consumers feel the negative influence of the trade protectionism. But many Chinese tire enterprises said that they would not give up the US market.

The US enterprises or associations also responded furiously to the China’s anti-dumping probes into their chickens. They said that the chicken trade between the USA and China are extraordinarily normal without any hints of dumping. They are quite upset with the Chinese government’s decision and the US auto industry, which was also the target of anti-dumping, shared the same feeling.

Well, it seems that a real trade war is on the verge of breaking out!

A Quarrel between Couples

The New York Times thought the Chinese and US governments are facing the domestic stress so that they took the measures. Before the tire special safeguard case, the two countries’ relationship seems to be quite good. Wu Bangguo, Head of the National People’s Congress Committee of China just finished his visit in the USA. The two countries will also talk about fighting against terrorism in this autumn. But Obama promised to strengthen the enforcement of trade regulations in last year’s president election. Presently, the support rate of the US people for the Obama government has fallen to the lowest degree since he took the post, which is mainly attributed to the little progress of medical insurance reform.

The Chinese government is also confronted with big stress from its citizens. Many Chinese people were not satisfied with the US special safeguard measures for the Chinese tires and asked the government to sell a large amount of US national debts to suppress the US capital market. These people gave out their opinions through Internet and exerted great influence on the Chinese government. Victor Shih, political science professor of the US Northwestern University, said: “The formulation of policies, including trade policies, will be more and more in accordance with the online voices.”

An expert from Deutsche Bank said that it was necessary for China to strike against the USA. If the Chinese government didn’t have a strong standpoint, the US government may continue to launch anti-dumping probes into the other products from China. The other countries may even follow suit. So if the tense situation of the Sino-US trade further deteriorates, the Chinese government may take measures to restrict the importation of beans and planes from the USA.

Analyzers pointed out that the status quo is that the real dependence degree of China and the USA on each other is higher than they think. China needs the American market to keep its economic growth rate and employment ratio at certain levels. With the increase of the government deficit, the US government will not give up any opportunity of financing, including selling a large amount of national debts to China.

In the Pittsburg G20 Summit from September 24 to 25, Chinese president Hu Jintao held a talk with US president Obama on the two countries’ cooperation in counter-terrorism, environmental protection as well as trade. However, no solutions to the Sino-US tire special safeguard case were formed in the meeting.

The Wall Street Journal held an optimistic opinion towards the solution of this dispute. It compared it with a quarrel between couples. It also believed that the two countroes will not upgrade the trade dispute to a trade war.

However, the two country’s governments should attach importance to this case and take effective measures to find a solution satisfactory to both of them.