China calls for WTO talks on U.S. tire tariffs

updated 1:43 p.m. ET Sept. 16, 2009

BEIJING - As Beijing launched a case Monday against new U.S. tariffs on Chinese tires, President Barack Obama defended the duties, saying trading agreements must be enforced in order for trading systems to work.

The conflict adds to a series of disputes over poultry, auto parts and other goods that have threatened to strain relations as Beijing and Washington cooperate on complex issues including the economic crisis and North Korea.

It comes as the two world powerhouses prepare for a global economic summit.

News of China’s filing with the World Trade Organization sent Asian markets down 2 percent and more Monday on worries about the potential impact on the global economic recovery. But investors appeared to take a less dire view of the dispute as the day wore on. European markets were down marginally by late in the trading and U.S. markets were flat by midday.

While China’s quick response threatened to escalate the battle, many private economists said they expected both sides would find a way to avoid a full-blown trade war that would harm producers in both countries.

“The big message from China to the United States is think twice, think three times before repeating this kind of relief for a U.S. industry because if you do this again, we are going to hit you again,” said Gary Hufbauer, a trade expert at the Peterson Institute, a Washington think tank.

Economists said that both nations have too much at stake economically to allow the dispute to get out of control.

The United States, as the world’s largest economy, represents a huge export market for Chinese products while China is the largest holder of U.S. Treasury securities at a time when U.S. government debt is exploding as the recession and efforts to stabilize the banking system have sent the federal imbalance to more than $1 trillion in the current budget year.

In a speech Monday in New York, Obama said he did not act to be provocative or to promote protectionism. He said expanded trade and new trade agreements are essential to U.S. economic growth and enforcing such agreements is part of maintaining an open and free trading system.

The Chinese complaint to the WTO in Geneva triggers a 60-day WTO process in which the two sides are to try to resolve the dispute through negotiations. If that fails, China can request a WTO panel to investigate and rule on the case.

The U.S. tariffs are “a serious case of trade protectionism, which China resolutely opposes,” said a deputy commerce minister, Zhong Shan, quoted by the official Xinhua News Agency.

Beijing’s response to Friday’s tariff decision shows the urgency communist leaders attach to maintaining exports, employment and social stability. Officials have said as many as 30 million laborers lost factory jobs last year as exports plummeted. Many have found new employment, but the government is anxious to avert more job losses.

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