The Wall Street Journal
By Peter Fritsch
August 28, 2009

WASHINGTON — A politically charged case involving Chinese tire imports will soon force the hand of an Obama administration that has yet to articulate a clear trade policy to anxious global trading partners.

President Barack Obama has until Sept. 17 to rule on a U.S. International Trade Commission recommendation that the White House put a 55% tariff on low-grade car tires imported from China. The ITC’s finding followed a complaint by the United Steelworkers that a flood of cheap Chinese tires in recent years had cost more than 5,000 union jobs.

The president’s decision — he is under no obligation to follow the ITC — is due just days before he hosts Chinese President Hu Jintao and others world leaders at a G-20 summit in Pittsburgh.

Mr. Obama’s call is fraught with political risk. If he sides with the steelworkers, he invites accusations of protectionism. Siding with China risks disappointing a key constituency that he is relying on to support his domestic agenda.

Mr. Obama’s conundrum evokes his predecessor’s wrangling over steel. President George W. Bush imposed 30% tariffs on steel imports during his first year in office, a sop to a domestic industry that he was forced to abandon in December 2003 under intense pressure from trading partners. The episode severely weakened the U.S. in global trade talks.

"Given that the [tire] petition was supported only by unions and not by the U.S. tire industry, our allies will want to see whether the administration’s trade policy is informed by broader national economic interests or dictated by Democratic caucus politics," said Daniel Price, former assistant to Mr. Bush for international economic affairs and now a partner specializing in trade at law firm Sidley Austin.

U.S. tire makers haven’t publicly lined up to back the tariffs. That is tacit recognition, say critics of the union’s complaint, that the low end of the American tire market is a money loser for the big brands, many of which have abandoned the market in recent years.

The value of Chinese tire exports to the U.S. totaled $1.8 billion last year — up from $450 million in 2004 — in a market segment worth $16 billion a year.

American tire distributors and retailers say import penalties will do more harm than good, costing jobs and forcing Americans who rely on affordable tires to continue driving on old, worn tires. A set of four Chinese tires sold under the brand name "Finalist" retail for around $200 — about half what premium brand names cost.

"Spending $400 to replace tires is a major expense for some folks," said Jim Mayfield, president of Del-Nat Tire Corp. of Memphis, Tenn., a large importer of Chinese tires. "This action would cost small tire retailers jobs and their customers money."

The Obama administration is laced with free-traders and the president has decried trade barriers as destructive to a global economic recovery. Yet he has been slow to push ahead on unresolved free-trade talks. And the administration has been largely mute on complaints by Canada and other trading partners regarding "Buy American" provisions in the recent economic-stimulus package.

In the tire case, organized labor is in a mood to collect on its support of Mr. Obama at the ballot box. "President Obama gave us reasonable belief that he would enforce our trade laws," said USW spokesman Gary Hubbard.

As part of China’s deal to join the World Trade Organization in 2001, Congress adopted a provision that until 2013 allows U.S. businesses to seek temporary protection from a surge in Chinese imports to give domestic manufacturers a chance to adjust. Makers of everything from wire hangers to pipe fittings tried to invoke that provision six times during the Bush administration. Two complaints never got past the ITC, and Mr. Bush rejected the other four.

If Mr. Obama upholds the ITC’s recommendation, Chinese tires face a tariff of 55% in the first year, 45% in the second year and 35% in the third year, after which the tariff would be eliminated.

Those numbers don’t work for Shen Weijia, executive director of Shanghai-based Giti Tire, China’s largest exporter of tires to the U.S., which last year sent seven million tires worth $300 million to the U.S. "If the heavy tariffs are imposed, our exports are doomed to drop significantly," he said. Mr. Shen said Chinese companies only got into the U.S. market after North American tire makers got out — an argument the ITC rejected.

Rutgers University economist Thomas J. Prusa, who testified before the ITC on behalf of importers, said it is unrealistic to think tariffs lasting three years would spur domestic investment in tire manufacturing. More likely, more tires would be imported from other low-cost producers, he said.

Mr. Prusa said tariffs could cost 25,000 U.S. jobs and force consumers to spend $600 million to $700 million more a year on tires. The ITC doesn’t calculate tariffs’ economic impact when studying complaints — something the administration is sure to do.

Given the political stakes, most expect Mr. Obama to seek a compromise, such as imposing a lower tariff in conjunction with a quota that holds imports to current levels. But even that could have negative repurcussions.

Said Xu Youming, manager of the legal department at the Hangzhou Zhongce Rubber Co., which exports $35 million of tires to the U.S. each year: "If the penalties are imposed, we may go to the WTO."

—Ellen Zhu in Shanghai contributed to this article.