At a press conference Tuesday, the Ministry of Commerce (MOC) refuted Washington’s accusation of violating WTO agreements by flooding the U.S. market, and said China’s U.S.-bound tire exports actually declined in the first half of 2009, not disrupting the U.S. market, as Washington had claimed.

The comment came shortly after the Bloomberg news agency yesterday quoted U.S. President Barack Obama as saying, "We have rules on the books," while downplaying the possibility of the two nations beginning a trade war.

MOC spokesman Yao Jian said Obama’s decision last week to raise duties on Chinese imported tires is an abuse of special safeguard measures, and "sends a wrong signal to the world amid the financial crisis."

However, Yao downplayed the possibility of the two countries waging a trade war, saying, "We don’t want to see individual trade remedy cases hurt bilateral trade and the economic relationship."

China’s tire exports to the U.S. rose by 2% in 2008, but fell by more than 15% in the first half of 2009, according to MOC data.

"The conclusion that China’s exports are distorting the U.S. market does not stand," Yao said, insisting that U.S. tire manufacturers did not join the petition, which was brought by the United Steelworkers union.

Some of the largest U.S. tire companies did not take part in the petition for relief from Chinese tire imports. Goodyear, the largest U.S. tiremaker, stayed neutral, while Cooper, the second-largest U.S. tiremaker, opposed the petition, Bloomberg reported yesterday.

Safeguards can be applied if a surge in imports hurts U.S. manufacturers, and once invoked on a specific product, other countries may follow and implement the same punishment, Bloomberg said.

Yao’s comments came after Obama expressed his hope in an interview with Bloomberg Monday, in which he said, "We’re not going to see a trade war."

Obama admitted "there are some tensions around this," but defended his stance by saying, "My message is very simple: We have rules on the books."

He argues that the enforcement of the existing trade rules is "to build support among lawmakers and the American public," while Stephanie Lester, vice president of the Retail Industry Leaders Association, which also represents companies such as Wal-Mart and Target, criticized Obama’s move as "a bow to political pressure," according to Bloomberg.

When asked what he would say to Chinese President Hu Jintao at the G20 summit next week in Pittsburgh, Obama said, "We’ve got to establish credibility and enforcement of the rules precisely because I want to further expand trade."
    
Zhou Shijian, a trade expert and senior counselor of the All China Lawyer Association, asked, "How can they be so unfair?" adding that statistics have shown that China’s exports fell last year and did no harm to U.S. industries.

Obama signed through a petition last Friday on imposing duties of 35% in the first year, 30% in the second and 25% in the third year on $1.8 billion worth of automobile tires from China.

Beijing filed a World Trade Organization (WTO) complaint Monday in response. On Sunday, it launched anti-dumping and anti-subsidies investigations into automobile and chicken products from the United States.

A Reuters report speculated yesterday that "the ire in Washington" might derive from the surge of the U.S. trade deficit with China, which totaled $103 billion in the first half of 2009, down 13% from last year but still a considerable surge over the last decade.

Shares of Chinese tire makers jumped Tues, after industry comments that the impact of the tariffs would be "limited."

Shanghai-listed Giti Tire told the Global Times that the impact is limited as tires for home-owned cars exported to the U.S. make up only about 10% of its total production capacity.

"The high tariffs will certainly hurt the interests of U.S. consumers and sellers, as they can no longer get high-quality, cheap products," Shen Jiawei, executive director of Giti Tire China, told the Global Times.

Doublestar, another tiremaker listed on the mainland stock exchange, also told Reuters that direct impact of the U.S. tariffs would be minimal.

And that means Chinese tire makers are not the only ones scrambling in the wake of President Barack Obama’s new tariffs.

Hankook Tire supplies the base tires for the Ford F-150. It is not a Chinese company, but a South Korean manufacturer with factories in China.

That still means that tires produced at those facilities, including those for the F-150, will be subject to the 35% tariff that goes into effect on Sept. 26.

"We can’t just pass that on to Ford, but we also can’t give up another 35%," said Hankook spokesman Bill Bainbridge. "We’ve got to have some important discussions with our significant customers about what we can do."

Ford is Hankook’s most significant customer among the domestic automakers in the United States.

The South Korean manufacturer supplies tires for between 7% and 8% of Ford’s cars and trucks.

Ford would not comment specifically about how the tariffs might impact its relationship with Hankook or its margins on the F-150.

"We’re certainly continuing to look at the situation and determine the impact," said Ford spokesman Todd Nissen. "We’re not going to speculate on any potential actions we may or may not take."

He said Hankook is one of five companies that supply tires for the F-150.

Chinese tires can be found on products from most manufacturers, and some U.S. tire brands produce some of their products in China. Those, too, will be subject to the tariff.

Hankook is the seventh-largest tire manufacturer in the world and became Ford’s first Asian tire supplier in 1999. In addition to its factories in South Korea and China, it produces tires in Hungary.

Bainbridge said Hankook is weighing its options. He said it could shift production for U.S. products from China to its factories in South Korea and send non-U.S. business to those facilities. However, he said that will take time.

Chinese tire exporters are also urging the government to offer higher tax rebates, said Zhou Zhiyong, general manager of China’s largest tire exporter Guangzhou Huanan Rubber Tire Co Ltd.

"Chinese tire producers have reached a consensus that we are going to raise the price on tire exports to the U.S. by large margins," Zhou told Guangzhou Daily. He added that the move would make American consumers feel the pain caused by the new tariff.

Zhou’s tone may sound retaliatory, but according to Zhang Zhichao, analyst of the rubber industry with China International Futures Co, Chinese tire producers are in a dire need to raise prices to keep their businesses profitable after the tariff takes effect.

"The rising rubber prices in the international market as well as the new tariff would greatly lower (Chinese tire producers’) profit margin, so they need this price hike even though that may lead to a drop in sales in the U.S. market," Zhang said.

Wang Guomei, director of overseas marketing for Shandong Linglong Rubber Co. Ltd., sold her company’s low-end tires for $30 to U.S. importers. She said prices will jump to $40 when the tariff is raised to 35%.

Many tire companies have begun exploring markets outside the U.S. and a rise in tire prices would help generate more profit from those markets, Wang said. Giti Tire China, which generates $800 million a year from exports to the U.S., has shifted focus to the domestic market as well as to Europe, Southeast Asia, South America and Africa, according to Shen Weijia, company executive director.

"Recovering sales in the U.S. and the high retail sales growth in China in the past eight months have provided support for a higher price," Zhang said.

U.S. retail sales in August increased by 2.7% from a year earlier, exceeding economists’ forecasts and increasing speculation that a recovery in the world’s largest economy will swell demand.

In addition, China may sell its tires to countries like India, Japan, South Korea and Germany, who are likely to supplant China as the low-end tire suppliers to the U.S. market, said Zhang.

Chinese imports come at the lower end of the price spectrum, where U.S. producers have little interest in, or capacity for, making substitutes for the Chinese imports. More likely, their demand would be satisfied by imports from other countries that offer low-end, low-priced tires.

According to Wang, her company has been operating under full capacity since June, as overseas tire wholesalers are seeing the period before the imposition of the new tariff as a golden time to stockpile cheap Chinese tires.

"Our order could keep us working 24 hours a day till October," Wang said.

“China and the U.S. share extensive and broad common interests and we are ready to work with the U.S.,” Foreign Ministry spokeswoman Jiang Yu told reporters in Beijing today. China is ready to “strengthen communication, dialogue and cooperation in various fields and properly deal with our problems,” she said.

Chinese President Hu Jintao will travel to the U.S. to speak at the United Nations in New York next week and attend the Group of 20 Summit in Pittsburgh. President Barack Obama and Hu are set to meet during his visit. Jiang’s remarks dovetail with those made by Obama on Sept. 14, when he told Bloomberg News in an interview that, “we’re not going to see a trade war.”

The comments from both nations reflect the growing importance of their relations, with China set to surpass Japan next year to become the world’s No. 2 economy after the U.S., according to a projection by the International Monetary Fund. In an interview last week, U.S. Ambassador to China Jon Huntsman said relations had matured to the point where single disputes won’t undermine ties.

“The old days, where we disagreed on a trade issue and the entire relationship basically felt the impact of that” have passed, Huntsman said in a Sept. 11 interview in Dalian, China.

Washington’s decision to impose added duties on Chinese-made tires has triggered strong complaints.

Washington’s weekend decision to impose added duties on Chinese-made tires has triggered strong complaints from Chinese tyre companies, and Beijing has said that the U.S. move sent the wrong message of protectionism to the rest of the world.

The Chinese Rubber Industry Association has submitted seven proposals to the Ministry of Commerce and Ministry of Industry and Information Technology, according a report on the website of Communist Party mouthpiece, the People’s Daily.

The group wants the value-added export tax rebate for tires to be raised to 13% or 15% from 9%, and tariffs on imported raw materials to be cut to 5%, or even zero, from 20%, the Web site said, citing a report from the Chongqing Evening News.

The association also called for the government to buy more tires from domestic companies.

Chinese statistics show that tyre exports to the U.S. rose by 2% in 2008, but fell by more than 15% in the first half of 2009, Commerce Ministry spokesman Yao Jian said on Tuesday.

The U.S. risks losing more than 500,000 jobs unless President Barack Obama steps up effort to pass trade deals and fix disputes that threaten U.S. exports, a top business group said on Tuesday.

“We need stronger trade leadership from the administration,” Tom Donohue, president of the U.S. Chamber of Commerce said in a speech in East Lansing, Mich.