Tire tariffs provoke China threat to U.S. auto parts, chicken

— -- President Obama insisted Monday that imposing stiff tariffs on imported Chinese passenger-car tires was not meant to be "provocative" even as China complained to the World Trade Organization about the move.

China's complaint — and demand for technical talks with the U.S. — followed by one day its announcement of an investigation into whether U.S. companies were "dumping" chicken and auto parts, selling them below the cost of production

The tit-for-tat moves left some analysts worrying about prospects for an escalating trade skirmish against a backdrop of global economic fragility. "In the short run, this could fairly easily spiral out of control. ... Both countries are somewhat backed into a corner," said Eswar Prasad, former head of the International Monetary Fund's China unit.

Obama imposed a 35% tariff on imported Chinese tires after an International Trade Commission ruling in June that a surge of inexpensive Chinese-made tires had wounded U.S. makers. The tariffs are permitted under a provision China reluctantly accepted when it joined the WTO in 2001.

More than 5,000 workers in U.S. tire plants have lost their jobs since 2004 amid a flood of imported tires, according to the United Steelworkers union, which lodged the original ITC complaint. About 31,000 production jobs remain. Last year, China shipped to the U.S. auto tires and treads worth $2 billion, more than triple 2004's $593 million.

U.S. tiremakers, however, say the tariffs will raise prices and cost jobs elsewhere. Roy Littlefield, executive vice president of the Tire Industry Association, says tiremakers will shift production to other low-cost countries such as Brazil or India rather than return lost jobs to the U.S.

The intensifying trade tensions come little more than a week before world leaders, including Obama and Chinese President Hu Jintao, are scheduled to meet in Pittsburgh for the Group of 20 summit. Previous meetings have featured vows to resist protectionism amid shrinking global trade volumes.

But domestic politics in both the U.S. and China are driving trade policy. Obama needs labor union support in his push for health care legislation in Congress. Chinese leaders, meanwhile, are acutely sensitive to the needs of their job-rich export industries. China's August exports were 23% below year-ago figures.

There's little sign that the competing interests can be reconciled. "I suspect that we will make a concerted effort to coordinate the adjustment process only after things have gotten much worse for everybody," wrote Michael Pettis of Peking University's Guanghua School of Management.