President Obama has acted to impose a 35% tariff on imported tires from China. This was done under a domestic US law and not through the provisions of the World Trade Organization. The US Steel Workers Union which had been lobbying for the action greeted it with praise. The Chinese Ministry of Trade has denounced it strongly.
China "strongly opposes" U.S. President Barack Obama’s decision to impose tariffs on tire imports from China and may refer the case to the World Trade Organization, the Asian country’s Ministry of Commerce said.
The U.S. violated rules of the WTO and the tariff imposition is a breach of the commitments made by the U.S. at the Group of 20 summits, the ministry said in a statement posted on its Web site, citing spokesman Yao Jian. The move will harm both countries’ interests and produce a chain reaction of trade protectionism, slowing world economic recovery, it added.
Last Spring at the G20 meeting Obama came out strongly in opposition to protectionist measures in response to the global recession. He used a signing statement for a piece of legislation that called for preference measure for US industries to disallow that provision. His latest action is a marked change of course.
It is certain that this will be a hot topic at the upcoming G20 meeting in Pittsburgh. China's quick reaction would seem to indicate that they are unwilling to let this pass quietly. As mentioned above they can file a complaint with the WTO. The finding on which Obama bases his action simply stated that the imports were a disruption to US markets and did not establish a basis for a dumping case which would be necessary under WTO rules.
China is of course one of the US's major creditors. I holds about $2T in US treasuries. It has already been taking some steps toward diversifying its reserve portfolio. If they were to speed up that process that would likely have significant impacts of US government finances. The interest rates of US government debt would rise and the value of the dollar on international exchange would likely decline.
This action is in and of itself is not necessarily an earth shaking event. Obama needs union support for his health care legislation. If this is basically a token gesture and not a fundamental shift in his previous trade policy, then it will probably be a minor drama. However as with all things in international diplomacy there is a risk of reaction and escalation. It will be very interesting to see how this unfolds.
One thing is for sure, if you are in need of new tires you'd do well to rush and get them now. The price will be going up.