A U.S. decision to impose special duties on Chinese tires could trigger a host of trade complaints against Chinese products and a backlash from Beijing, creating tensions as Western nations seek China's support at a G20 meeting.
China responded swiftly to President Barack Obama's announcement Friday of safeguard duties on tire imports from China, 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.
Obama, in a speech on Wall Street, said he was committed to expanding world trade and denied protectionist intent.
When, as happened this weekend, we invoke provisions of existing agreements, we do so not to be provocative or to promote self-defeating protectionism, he said.
We do so because enforcing trade agreements is part and parcel of maintaining an open and free trading system.
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 it has grown considerably over the last decade.
The imbalance is a source of much ire in Washington and the rest of the country.
U.S. Agriculture Secretary Tom Vilsack said the Obama administration will strongly object to any attempt by China to retaliate against chicken exports.
There is no reason why another country should try to even the scale, if you will, by focusing on agricultural products, Vilsack told a National Farmers Union conference.
Stocks on Wall Street slipped shortly after the opening bell on Monday in part over concerns about the trade dispute but finished squarely ahead, with the Dow industrials up 19 points to 9,624. U.S. tire makers Goodyear Tire & Rubber Co and Cooper Tire & Rubber Co ended higher.
NO FULL-SCALE TRADE WAR
While the intensified sparring between two of 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.
White House spokesman Robert Gibbs said the Obama administration did not expect the tire spat to cause friction on other issues of interest to the two countries such as the North Korean nuclear standoff.
I don't see that a dispute like this will cause ... countries like the United States and China to get off track on things that are very important in terms of global matters, he told reporters on Air Force One.
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 imports of 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, said China's vice minister of commerce, Zhong Shan.
In Washington, a U.S. trade official said the tire decision could withstand WTO legal scrutiny. In this case, the United States is confident that our action is fully WTO consistent, the official said on condition of anonymity.
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 Generale 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 United States -- about $2 billion a year, Mei Xinyu, a trade expert with the Ministry of Commerce, told Chinese media.
The two countries have vowed to cooperate in trying to revive global economic growth, but trade friction could spill into the G20 summit. Chinese President Hu Jintao will meet Obama in Pittsburgh and host him in China in November.
The tire duty was the first time Washington has applied special safeguard provisions that Beijing agreed to before joining the WTO 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.
But economists and experts said the dispute would not threaten the economic underpinnings of Sino-U.S. relations.
The new duty of 35 percent 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.
(Additional reporting by Ben Blanchard, Kirby Chien, Yu Le, Tom Miles and Doug Palmer and Charles Abbott in Washington; Writing by Lucy Hornby; Editing by Philip Barbara)