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Tire-ade

A trade war between the U.S. and China is unlikely, but if it occurs, the odds favor the U.S. 

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Despite a media drumbeat about rising tension between Beijing and Washington over President Obama's decision to impose tariffs on imports of Chinese-made tires, a full-scale trade war between the United States and China appears unlikely, according to experts on U.S. trade.

“If there is a trade war, China will lose,” says Peter Morici, a business professor at the University of Maryland. “A [Chinese-made]coffeemaker may be more expensive at Wal-Mart, but that won’t compare to the headaches they will have, and Beijing knows that.”

The Obama administration announced Friday that it was imposing a 35 percent tariff on tires imported from China. The Beijing government responded angrily, saying it was taking the case to the World Trade Organization and could impose similar tariffs on imports of U.S. auto parts and chicken. China said it believed the action by Obama “is a wrong practice abusing trade remedies.”

Clyde V. Prestowitz Jr., a trade expert and founder of the Washington-based Economic Strategy Institute, said it was unlikely that China would escalate the disagreement or decide to sell China’s hoard of $750 billion worth of U.S. Treasury bills. “This is a bargaining situation, and the Chinese have a huge stake in keeping the American market open and keeping Treasuries highly valued,” Prestowitz said. He noted that tire imports were less than 1 percent of Chinese exports to the U.S.

Despite some harsh words earlier, on Tuesday the Beijing government appeared to be backpedaling on the possibility of escalating hostilities because of the tire issue. China had a $280 billion trade surplus with the United States in 2008.

“We do not like to see anything that negatively impacts bilateral trade, including U.S. abuse of such measures,” said Commerce Ministry spokesman Yao Jian. “So when we meet with trade friction, we are willing to continue consultation and communication on relevant matters.”

The Obama administration acted after the independent International Trade Commission in Washington decided in favor of a complaint by the U.S. Steelworkers, which represents American tire workers, that Chinese imports have disrupted the U.S. market for tires. Under the 1999 agreement that allowed Chinese entry into the WTO and gave China most-favored-nation trade status, American companies and unions can seek tariffs to provide help to a struggling domestic industry disrupted by imports. Friday’s decision was the first use of the law since it was adopted.

According to the union, imports of Chinese-made tires increased 215 percent from 2004 to 2008, reaching a total 46 million tires worth $1.7 billion in 2008. It says 5,000 jobs were lost at U.S. tire factories.

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