Obama faces tough choice on China tire duty case

[September 11, 2009]  WASHINGTON (AP) -- President Barack Obama faces a tough choice as he nears a deadline on whether to slap tariffs on a flood of Chinese tires entering the United States: Imposing duties could antagonize strategically important China; not doing so would anger Obama's union allies.

By next week Obama must decide whether the United States will impose a tariff of up to 55 percent on tires imported from China, which a powerful union blames for the loss of thousands of American jobs. The timing of the decision could be awkward.

It comes on the eve of an economic summit of the Group of 20 leading rich and developing nations in Pittsburgh. China will be a major presence at the meeting, and the United States will be eager to show it supports free trade. At the same time, Obama needs union support as he makes a high-stakes push for national health care legislation.

"He says he's free trade, and he says he's pro-union, so it's impossible for him," Roy Littlefield, executive vice president of the Tire Industry Association, which opposes the tire tariff, said in an interview.

By Sept. 17, Obama must accept, reject or modify a U.S. International Trade Commission ruling that a rising tide of Chinese tires hurts U.S. producers. The federal trade panel recommended a 55 percent tariff in the first year, 45 percent in the second year and 35 percent in the third year.

Beijing says the duties would be a violation of global free-trade principles and has complained about U.S. protectionism.

Littlefield said a tariff would not save American jobs; it would only cause tire manufacturers to move production to another country with less strict environmental and safety controls, less active unions and lower costs than the United States.

United Steelworkers, the union that brought the case, accuses China of making a recent push to unload more tires ahead of possible action by Obama. The union says more than 5,000 tire workers have lost jobs since 2004, as Chinese tires overwhelmed the U.S. market.

Labor is always important to Democratic presidents, but that is especially true as Obama tries to win support on health care, which has become the central issue of his first year in office.

To reach a compromise on health care, Obama may need concessions from pro-labor Democrats who support a strong stand against China. Knowing this, Obama might be less inclined to risk angering them over something like tires, according to Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics.

The Bush administration was criticized for being too delicate in confronting Beijing's alleged trade violations as it sought Chinese cooperation. Obama told voters during the presidential campaign that he would do it differently.

The White House also recognizes, however, that it needs Chinese help to confront climate change, nuclear standoffs with Iran and North Korea and global economic turmoil. China is the world's third-largest economy and a veto-holding member of the United Nations Security Council.

Obama also needs to prove to the world at the G-20 summit in Pittsburgh that the United States is still committed to free trade. Many of the nearly two dozen world leaders he will be hosting Sept. 24-25 have made strong statements critical of countries that protect their key industries.

While Obama has vowed to help Americans whose jobs are being lost to Chinese workers, he also has spoken out against protectionism, and other countries will be watching the tire case as a test of this professed support of free trade.

Governments around the world have suggested the United States talks tough against protectionism only when its own industries are not threatened. U.S. rhetoric on free trade also has been questioned because of a "Buy American" provision in the U.S. stimulus package.

For the Chinese government, the tire dispute threatens an economic relationship crucial to China's economic growth. If Obama should impose tariffs, Beijing might face public pressure to retaliate. Soaring Chinese imports of American chicken meat already have been mentioned by Chinese state media as a possible target. Beijing also could sell some of its extensive holdings of U.S. Treasury debt, which could unsettle markets.

Many Chinese analysts, however, believe U.S.-China economic ties are too important for the governments to risk upsetting. Obama probably will try to find a compromise, just as his predecessor, George W. Bush, did not invoke punishing trade sanctions, Shen Guobing, a trade specialist at Fudan University's Institute of World Economy in Shanghai, said.

Daniella Markheim, a trade analyst at The Heritage Foundation think tank, said that while tires alone probably will not start a trade war, "the more you keep poking and prodding what is already not necessarily the friendliest relationship, the more you tempt fate."

[Associated Press; By FOSTER KLUG]

Associated Press researcher Bonnie Cao in Beijing contributed to this report.

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