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Chinese duties on U.S. cars heat up trade tension

By Don Lee, Tribune Washington Bureau

WASHINGTON — U.S.-China trade tensions are starting to heat up, an especially ominous development as global export growth is slowing and both countries face significant political showdowns at home next year.

China fired the latest salvo this week by imposing duties as high as 22 percent on imports of large cars and sport utility vehicles from the U.S. for the next two years.

Beijing alleged dumping and improper U.S. government subsidies, the same charges that Washington has made about Chinese exports of solar panels to the U.S.

The practical effect of the Chinese tariffs is minor: U.S. shipments of motor vehicles to China last year totaled just $3.5 billion — nearly 4 percent of American exports to China and less than 0.3 percent of all U.S. exports.

The new tariff is in addition to an existing 25 percent duty on imported vehicles in China, so the new levy probably won’t make much difference to Chinese buyers, analysts said.

Nonetheless, American shipments of SUVs and other cars to China represent one of the fastest-growing export segments and among the most politically sensitive. Analysts worry that the Chinese action will add fuel to already rising tensions between the two countries.

The Obama administration has been stepping up its legal challenges to Chinese trade practices, most recently saying it plans to ask the World Trade Organization next week to look into Chinese restrictions on imports of American broiler chickens. This month is the 10th anniversary of China’s membership in the WTO.

John Bryson, the new U.S. commerce secretary, had some tough words Thursday for Beijing, although he did not refer directly to the new tariff.

“The United States has reached a point where we cannot quietly accept China ignoring many of the trade rules,” he said in remarks prepared for the U.S. Chamber of Commerce. “China still substantially subsidizes its own companies, discriminates against foreign companies and has poor intellectual-property protections.”

Bryson said that Chinese officials at recent trade negotiations “made promising commitments in some of these areas. But we must see follow-through. We cannot rely just on words.”

China’s Ministry of Commerce, in announcing the new tariffs, said the U.S.-produced vehicles that had benefited from alleged subsidies and dumping had “substantially damaged China’s auto industry.” The ministry said General Motors Co. and Chrysler Group would be hit with the highest duties.

“China should strike back in its own good time as the U.S. always stirs up investigations targeting China by routinely using trade remedy measures,” Li Zhongzhou, a former official from the Ministry of Commerce, was quoted as saying by the official New China News Agency.

GM and other car companies said they were studying China’s action. Industry analysts said BMW, which produces SUVs in South Carolina, was likely to feel the most pain because it exports more from the U.S. than American car companies.

As such, analysts said, the tariffs won’t have an effect on U.S. carmakers’ bottom line.

The U.S.-China Business Council, which represents American companies doing business in China, noted that the U.S. and China have imposed duties on each other 110 times from 1995 to 2010.
Still, what concerns the business council and others is that any trade conflict will be magnified by the current economic and political environment.

Overall, U.S. export volume, projected to grow a robust 6.7% this year, has been a bright spot for the American economy and a centerpiece of Obama’s job-growth strategy.

But next year, U.S. exports to all countries are expected to grow by only about half of this year’s rate, said Gregory Daco, a trade specialist at research firm IHS Global Insights.

Chinese exports are likely to slow too because of weakening global demand, and that could present political problems for China because job creation and economic growth are central to the nation’s political legitimacy.

Taken together, all this “generates a climate that may lead to retaliation, and it could spiral,” Daco said. “You do not want to develop that atmosphere.”

Adding to the economic tensions, the U.S. is heading into a presidential election year, and trade is likely to be a hot issue, as it has been in the past when the American economy was weak.

In recent years, Congress and the Obama administration have sparred over China’s currency policy, which many people believe unfairly gives Chinese exporters an advantage and is a chief reason for the U.S.’s huge trade deficit, which this year is on pace to exceed last year’s $273-billion figure.

China also is gearing up for a highly sensitive period next year as its Communist Party leadership undergoes changes.

“In that context, the Chinese political transition makes for especially heavy pressure right now to push back,” said Derek Scissors, a China expert at the Heritage Foundation in Washington.

(Times staff writers Jerry Hirsch in Los Angeles and Jim Puzzanghera in Washington contributed to this report.)
©2011 Tribune Co.

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