Obama Defends China Tariffs as Trade War Talk Grows (Update1)

By Mark Drajem

Sept. 14 (Bloomberg) -- President Barack Obama said his decision to impose tariffs on Chinese tires wasn’t intended to be “provocative,” as China’s response sparked concern about the risk of a trade war.

China called the move an “abuse,” and filed a complaint with the World Trade Organization today. China also said it will probe whether U.S. chicken and auto products are being dumped at below-market prices or receive unfair government subsidies.

“This administration is committed to pursuing expanded trade and new trade agreements,” Obama said in a speech at Federal Hall in New York City today. “But no trading system will work if we fail to enforce our trade agreements.”

Obama said Sept. 11 that he will impose duties of 35 percent on $1.8 billion of automobile tires from China, acting on a petition by the United Steelworkers union.

The “risk is that it just spirals” into a trade war, David Spooner, a former Commerce Department official and a lawyer at Squire, Sanders & Dempsey LLP in Washington, said in an interview today. Spooner represented China’s rubber industry in the case.

White House spokesman Robert Gibbs told reporters today that “a dispute like this” won’t cause the U.S. relationship with China to “get off track.”

Obama said in his speech that imposing the tariffs wasn’t meant to be “provocative or to promote self-defeating protectionism.”

‘Political Pressure’

The case brought by the steelworkers union was the largest so-called safeguard petition filed to protect U.S. producers from increasing imports from China. Union leaders and Democratic lawmakers said the decision demonstrates Obama’s commitment to protecting U.S. workers and jobs.

Retailers that rely on imports are “disappointed in the president’s decision to bow to political pressure,” Stephanie Lester, vice president of the Retail Industry Leaders Association, which represents companies such as Wal-Mart Stores Inc. and Target Corp., said in a statement.

The retailers hope administration officials “will be more judicious in their responses to any future safeguard petitions,” she said.

Obama’s decision on tires may encourage U.S. producers of apparel, steel or other goods to file similar safeguard complaints against imports from China, and spur China to retaliate against U.S. companies trying to do business there, said Robert Kapp, a Port Townsend, Washington-based business consultant specializing in China.

‘Biting Their Nails’

“There are 10 to 50 companies on the U.S. side biting their nails to the bone, hoping they are not caught up in this,” Kapp said.

As long as China continues to subsidize its manufacturers and channel government funds into export-oriented businesses, trade friction with the U.S. will remain, said Jeremie Waterman, senior director for China at the U.S. Chamber of Commerce.

The safeguard complaints “are symptoms of broader problems in the U.S.-China relationship,” he said in an interview today. Obama’s decision “is not likely to save a single job, but it’s a legal and legitimate action.”

The U.S. and China will try to make sure the frictions that erupted over tires don’t disrupt a commercial relationship that totaled $409 billion last year, Kapp said. China, the second- largest U.S. trading partner after Canada, is also the largest holder of U.S. debt with $776 billion.

“The Chinese will be angry,” said Elliot Feldman, a partner with Baker Hostetler LLP in Washington, who writes a blog on China trade. “But there is a limit to their anger.”

Feldman predicted China won’t prevail in its complaint over the tire tariffs because Chinese officials accepted such “safeguard cases” when it joined the WTO.

‘U.S. Confident’

“The U.S. is confident that our action is fully WTO- consistent,” Carol Guthrie, a spokeswoman for the U.S. Trade Representative’s office, said in an interview today. The safeguards were part of “the deal China agreed to.”

In safeguard cases, companies need to show only that imports are surging and not that the products benefit from subsidies or are being dumped at a discount.

Some of the largest U.S. tire companies didn’t join in the union’s petition for relief from Chinese tire imports. Goodyear Tire & Rubber Co., the largest U.S. tiremaker, stayed neutral. Cooper Tire & Rubber Co., the second-largest U.S. tiremaker, opposed the relief. The company has a plant in China.

Goodyear gained 51 cents, or 3 percent, to $17.78 at 4 p.m. in New York Stock Exchange composite trading. Cooper rose $1.03, or 7 percent, to $15.89.

Tightening Supplies

“We see positive implications for U.S. pricing,” Deutsche Bank Group said in a report today. “Tightening supplies of Chinese tires could exacerbate this phenomenon in the U.S.”

The USA Poultry & Egg Export Council said China’s move to investigate whether the U.S. sold poultry there for below-market prices was prompted partly by bad U.S. trade policies, including the tariffs on tires.

“Our own government is creating these problems more so than the Chinese,” James Sumner, president of the group representing producers of 90 percent of U.S. chicken and egg exports, said in an interview today. “We are upset with the way this has been handled by the administration.”