U.S. to Impose Tariffs on Tires from China in Obama Administration's First 421 Safeguard Investigation

September 14, 2009

President Obama announced Friday that the U.S. will impose a three-year tariff on consumer tires imported from China beginning September 26 in connection with the U.S. International Trade Commission’s (ITC) 421 Safeguards investigation. During its investigation, the ITC determined that a surge of Chinese-made tires imported to the U.S. led to a decline in employment in the domestic industry.

The controversial decision, which was immediately criticized by Chinese officials, fulfills the President’s campaign promise to better use U.S. trade laws to protect to American workers. However, the President’s decision appears to be carefully crafted to avoid antagonizing the U.S.’ largest trading partner, which has become the target of a myriad of U.S. trade complaints since the onset of the economic downturn, too much. Instead of implementing a 55% tariff in the first year as recommended by the ITC, the President chose to impose only a 35% tariff in the first year, which will be reduced to 30% in the second year and set at only 25% in the third year.

Nevertheless, a representative from the Chinese rubber industry estimated that the tariff would cost its industry $1 billion in exports and China’s Ministry of Commerce announced over the weekend that it would refer the U.S.’ decision to the World Trade Organization (WTO).

For the U.S., this is the first time it has implemented a 421 Safeguard. The 421 Safeguard, which was explicitly negotiated as part of China’s accession to the WTO, allows U.S. industries or unions to seek protection from surges in Chinese imports with a lower burden of proof than what is typically required for antidumping or countervailing duty cases.

While the ITC made affirmative injury determinations under the previous administration, few petitions were pursued because President Bush declined to provide import relief for the domestic industry citing “national economic interest.” But given President Obama’s political affiliation with labor unions and strong Congressional support for the 421 Safeguard provision, it is likely that more petitions will be filed before the provision expires in 2013.