A U.S. decision to impose special duties on Chinese tires could open the door to a host of trade complaints against Chinese products, creating tensions as Western nations seek Beijing's support at the G20 meeting.
China responded swiftly to U.S. President Barack Obama's announcement of safeguard duties on tire imports from China on Friday, saying on Monday it would request World Trade Organization consultations with the U.S. over the duties.
It also announced its own anti-dumping investigations of chicken products from the United States, a trade worth $800 million a year, as well as U.S. automotive exports.
Looming in the United States are complaints about products ranging from electric blankets to a steelmaking ingredient, while Chinese and European trade negotiators are gearing up for a fight over shoes.
While the intensified sparring between the world's biggest economies could trigger a bout of nerves in financial markets, it is unlikely to spiral into a full-scale trade war.
The countries have too much at stake, and need each other too much when it comes to problems like North Korea, to let the dispute spin out of control, said Jia Qingguo, expert on China-U.S. relations at Peking University.
Both sides will work hard to limit the fallout from this to within certain parameters and not let it affect the broader state of relations and cooperation, he said.
On Monday, Chinese state media denounced Obama's decision, which launches additional duties of 35 percent on Chinese-made tires from September 26, a day after the G20 summit of the world's biggest nations ends in Pittsburgh.
Even though the duties the U.S. imposed were lower than those recommended by U.S. International Trade Commission, it is still a serious case of protectionism, which China resolutely opposes, China's vice minister of commerce, Zhong Shan, said.
China would encourage and assist domestic tire makers to move up the value chain, he said in a statement posted on its website, in a challenge to the higher-end producers in the U.S.
After the U.S. decision, share prices of Chinese tire makers plunged in trade on Monday, led by major producer Double Coin, which fell by its daily 10 percent limit. Rubber futures in Tokyo dropped 9 percent.
Worries about a deteriorating trade environment could weigh on financial markets.
In an environment where it looks like global trade will not recover to the levels we saw before the crisis for quite some time, the last thing we need is any sort of inkling of protectionism, said Glenn Maguire, chief Asia economist with Societe General in Hong Kong.
U.S. chicken and motor vehicle products targeted by Beijing's anti-dumping inquiries were roughly equal in value to China's tire exports to the U.S. -- about $2 billion a year, Mei Xinyu, a trade expert with the Ministry of Commerce, told Chinese media.
CONTINUED TRADE FRICTION
Washington and Beijing have vowed to cooperate in seeking to revive global economic growth, but friction over trade could spill into the G20 summit, which Chinese President Hu Jintao will attend, as well as Obama's scheduled visit to China in November.
The tire duty was the first time Washington has applied special safeguard provisions that Beijing agreed to before joining the World Trade Organization in 2001.
That could spark a chain reaction of trade protectionist measures that could slow the current pace of revival in the world economy, the Chinese Ministry of Commerce said over the weekend.
But economists and experts said the dispute would not threaten the economic underpinnings of Sino-U.S. relations.
While the impact of this trade-restricting measure by the US on the tire-making industry is serious, its macroeconomic impact is not enough to ... threaten the strategic relationship between the two countries, Qing Wang of Morgan Stanley Asia said in a research note.
The new duty of 35 percent will take effect on September 26 and adds to an existing 4 percent duty. The extra duty would fall to 30 percent in the second year and 25 percent in the third year.
The United Steelworkers union filed the tire protection petition earlier this year. It said a tripling of Chinese tire imports from 2004 to 2008 had cost more than 5,000 U.S. jobs.
The U.S. trade deficit with China totaled $103 billion in the first half of 2009, down 13 percent from last year but still a source of much ire in Washington.
(Additional reporting by Ben Blanchard, Kirby Chien, Yu Le and Tom Miles; Writing by Lucy Hornby; Editing by Bill Tarrant)