The World Trade Organization’s dispute-settlement panel ruled in favor of the United States in a trade dispute involving tire imports from China. In September 2009, President Barack Obama imposed tariffs of up to 35% on Chinese tires using a special safeguard mechanism. A special safeguard mechanism is a contingency restriction negotiated as part of a trade agreement that allows a nation to limit imports or to raise tariffs when a domestic industry is harmed by a sudden surge in imports and falling product prices. China had originally agreed to the possibility of special safeguard mechanisms as a condition of its admittance to the World Trade Organization (WTO). In response to President Obama imposing the higher tariffs, China filed a WTO dispute and retaliated by announcing higher duties on U.S. chicken, nylon and other products. President Obama’s challenging of China’s trade policies may be crucial in his goal of getting Congress to approve a free trade pact he has negotiated with South Korea.

QUESTIONS FOR DISCUSSION:

1. Several U.S. tire producers were opposed to the higher tariffs on Chinese tires since a number of them do some production in China and they also felt that the tariffs would merely shift sales from Chinese companies to other foreign producers rather than to higher-end American tire producers. Evaluate the strategic logic of imposing tariffs on Chinese goods in today’s environment of globalization when many of the imports are actually from American firms.
2. Even if the United States had the legal right to impose the higher tariffs under the WTO agreement, were the gains worth the cost, given that China has retaliated against other U.S. products and trade relations between the nations have been negatively impacted?
3. President Obama needs the support of unions, or at least their lack of opposition, to facilitate passage by Congress of the proposed free trade agreement with South Korea. Will President Obama’s emphasis on trade enforcement efforts be enough to win over unions?
4. Some members of Congress want to take punitive actions against China for its currency management policies and want to classify China as a currency manipulator. What would be the advantages and the disadvantages of using the WTO trade dispute mechanisms to take actions against China for its currency policies?

SOURCE: Williamson, E., & Barkley, T. (2010, December 14). U.S. wins China-tire fight. Wall Street Journal, p. A6. (Retrievable online at: http://online.wsj.com/article/SB10001424052748703727804576017473322868118.html)

Related video clip available at: http://www.bloomberg.com/video/65269484/
U.S. Trade Representative Kirk Interview