- The Washington Times - Wednesday, September 16, 2009

President Obama’s decision to impose restrictions on Chinese tire imports has opened the door to requests for similar protection from foreign competition by other U.S. industries and interests, trade experts warn, creating the conditions for an escalation of tensions with China.

Administration supporters have said Mr. Obama’s tough action early in his tenure will give him credibility with congressional Democrats and labor unions for later trade battles, but some warn that is a dangerous strategy.

“The problem with that is you can never satisfy the protectionism beast once you start feeding it,” said Daniel M. Price, the top international economics and trade adviser to George W. Bush during his last two years as president.

“Now that the door is open to such relief petitions by U.S. constituents, how do you say no to the next one?” he said.

U.S. interests were already indicating this week that Mr. Obama’s decision late Friday to levy a 35 percent tariff against Chinese tires had increased their interest in seeking protections through the same venue at the International Trade Commission - called a “421 remedy” under the 1974 Trade Act - that handed the United Steel Workers a victory in the tires case.

“The decision on Friday certainly resolves a question which was in a lot of industries’ minds, which was whether 421 was a viable option,” said Cass Johnson, president of the National Council of Textile Organizations (NCTO).

“It’s certainly something we’re going to look at more closely than we have before,” he added.

The textile industry may be the first to lodge a complaint against Chinese competitors, particularly importers of medium and low-end trousers, underwear, shirts and socks. U.S. textile firms have been seeking protections since before Mr. Obama took office, charging that the Chinese have been “dumping” into the U.S. market - selling their products for less than they cost to produce.

The president’s trade representative, Ron Kirk, on Monday named a former textile company executive, Gail Strickler, as his top assistant for textile cases.

Other industries that may seek trade relief include steel, auto production, financial services and natural resource extraction of oil, gas, minerals and gold, analysts said.

“Now that the White House door is open to protection, there are other people on K Street who would like to see how open it is,” said Gary Hufbauer, a trade expert at the Peterson Institute for International Economics, a nonpartisan Washington think tank.

The United Steel Workers argued in its complaint that the Chinese were dumping tires into the U.S. market and subsidizing their tire manufacturers, but the union was not required to prove either charge. The White House and U.S. industries reject the claim that 421 penalties approved Friday are protectionist.

Nancy Gravatt, a spokeswoman for the American Iron and Steel Institute, said Chinese subsidization of their industries is “a violation of trade laws.”

“That’s protectionist on their part, and it’s a little bit questionable that they would charge protectionism when it’s the opposite,” she said.

The Chinese, meanwhile, have expressed their displeasure in strong terms at Mr. Obama’s decision, announcing over the weekend that they will explore restricting U.S. imports of chicken and automobiles. China’s minister of commerce accused the U.S. of “rampant protectionism” following Friday’s decision.

Mr. Obama said Monday that he was “not surprised that China is upset about it.”

“But keep in mind, we have a huge economic relationship with China. We have cultivated a strong strategic relationship with China,” Mr. Obama said during an interview with CNBC.

Sen. Sherrod Brown, Ohio Democrat, was dismissive of Chinese concerns while speaking to reporters on Air Force One en route to an event with the president at an auto plant in his home state Tuesday, saying exports play a much larger role in China’s economy.

“That’s why the Chinese have too much at stake to launch any kind of a trade war. It’s not going to happen,” he predicted.

Mr. Obama justified his decision on the basis that “if we don’t enforce the rules,… then it’s very hard to have credibility, and it’s hard to get the American people to support future trade agreements.”

However, Beijing is increasingly in a position to exercise its own leverage, given the strength of the Chinese economy and Beijing’s massive holdings of U.S. debt.

But the U.S. “has important leverage over China also,” said Jim Rickards, an executive at Omnis Inc. and an expert on U.S.-China relations. “We could pursue a policy of inflation, which devalues their securities and engineers a massive wealth transfer from them to us.”

“No one wants a trade war. No one wants a financial war. What is most interesting to me is that it is happening anyway,” Mr. Rickards said.

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