Obama Meets Chinese President Amid Rising Trade Tensions

Sept. 22, 2009 -- President Obama sat down with Chinese President Hu Jintao in New York today amid rising tensions between their two nations over recent trade decisions.

Earlier this month, the Obama administration announced it would impose tariffs of up to 35 percent over the next three years on Chinese tires for cars and light trucks, in order to boost the tire industry in the United States.

The tariffs infuriated China, which responded by lodging a formal complaint with the World Trade Organization. It threatened to retaliate against American auto products, and sellers of chicken as well.

While trade issues did not come up in the remarks by the two presidents after their meeting, President Hu did acknowledge "sensitive issues" between the two nations.

"The Chinese side is willing to work with the United States to keep our bilateral relationship firmly along the right course and deepen our pragmatic cooperation in a wide range of areas," Hu said. "The Chinese side is also willing to work with the United States to properly handle sensitive issues to ensure that our relationship will continue to grow on a sound and steady course."

Obama said he is committed to pursuing "a genuinely cooperative and comprehensive relationship with China" and wants to make the relationship "more dynamic and effective."

A senior administration official providing a readout on the bilateral meeting said the Chinese remain concerned about the tariff issue. The official said Obama noted that the two countries have differences on this issue and told Hu that despite the tariff decision, the United States remains firmly committed to free trade and resisting protectionism.

Both sides emphasized the importance of "close consultations" in order to "attempt to manage potential trade disputes" in the future.

The Obama administration's decision to impose the tariffs came after a determination by the U.S. International Trade Commission, an independent government agency, that inexpensive Chinese tires were disrupting the U.S. market and costing the United States jobs.

U.S. imports of Chinese tires have nearly quadrupled since 2004, from $453.3 million to $1.8 billion in 2008, and their share of the U.S. market rose to nearly 17 percent.

According to the Office of the U.S. Trade Representative, in that same period, annual U.S. tire production capacity fell by 17.8 percent.

U.S. Trade Representative Ron Kirk said in a statement that the tariff was "designed to level the playing field for American workers in the tire market."

"These remedies are a necessary response to the harm done to U.S. workers and businesses, designed to achieve the objective of curbing what the ITC determined was a harmful surge of Chinese tires into the U.S. market," Kirk said.

Some analysts said the tariff decision could hurt the U.S.-China relationship and open the Obama administration up to charges of protectionism on the eve of the global economic summit in Pittsburgh.

China is the United States' second-largest trading partner, and the U.S. trade deficit with China reached a record $268 billion in 2008. As of the end of July, China held $800 billion of U.S. government debt, the largest foreign holdings of U.S. government assets held by any country.

While analysts said the trade disputes between the U.S. and China will continue, it is not likely to blow up into a full-fledged trade war, given the strategic economic relationship the two nations have.

"Both sides have too much at stake here," said Eswar Prasad, senior fellow and new century chairman in international economics at the Brookings Institution. "The relationship is especially important for China, because they need exports and the United States is a very important export market. China sends about one-fifth of its exports to the United States."

Domestic politics are also at play here. Analysts said the decision on Chinese tires was aimed at labor unions, whose support Obama needs in his push for health care reform and other domestic agenda items. Unions have been pushing the White House to help them.

The White House announced the decision just days before the president addressed the AFL-CIO annual convention, ahead of a Sept. 17 deadline to take action on the ITC recommendation.

When China became a member of the World Trade Organization in 2001, it agreed to a clause (the so-called 421 clause) that said other WTO members could impose relief on Chinese goods if imports caused market disruptions and threatened domestic producers.

The tire tariffs would take effect on imports entering the United States on or after Sept. 26.