Watch for US Trade Dispute Decisions

The US Commerce Dept is expected to announce its decision regarding oil and gas pipe imports from China later today. US steel workers and US Steel have joined forces with US affiliate of Russia's second largest steel producer and Wheatland Tube, a Pennsylvania-based steel company to file formal complaints again Chinese steel pipe imports. US steel pipe imports from China amounted to around $2.8 bln last year, while the increased demand for pipe helped US producers record a $2.4 bln profits in 2008, a three-fold increase 2007. Since then oil prices have tumbled and Chinese imports have fallen, partly because of the fear that the duties the US Commerce Dept could impose may be retroactive.

Meanwhile, by the end of next week (Sept 17) President Obama will have to decide whether to approve the US-based International Trade Commission finding against Chinese tire imports and impose the recommended 55% duty (vs 4% currently). Of note unlike in the steel pipe case, this is largely a labor case.

Last year the US imported about $1.5 bln worth of Chinese tires. As we have noted before, it is the first case before the Obama Administration under the "safe-guarding" clause in the WTO agreement that allowed China to join in late 2001. Four such cases made it this far in the previous administration and in each case President Bush rejected the ITC's recommendations.

During last year's campaign, Obama sounded somewhat more sympathetic to the unions' position and seemed more antagonistic to China. But in a close call, we are inclined to expect mild US actions. These are not glaring unambiguous examples of Chinese dumping or materially hurting US interests. With over $400 bln in Sino-American trade, China is the US second largest trading partner after Canada. These are relatively small cases so even if some kind of sanction is imposed the direct impact may be minor.

However, China does not like the embarrassment and would seem to prefer a negotiated settlement. Meanwhile, many are concerned that despite the pledges to resist, protectionism is lurking near the surface, nurtured perhaps by the highest unemployment in more than a quarter of a century. Obama, along with the other G20 have agreed to resist protectionist pressures, and although countervailing duties can be legitimate defenses, given the particulars in these cases, it is not clear retaliatory action won't appear protectionist in spirit.

It behooves the Obama Administration to 1) find clearer cases of harm from unfair Chinese trade practices, 2) avoid unilateral action by using the WTO more, and 3) set a high bar for best practices. Trade seems to always produce frictions and the more the trade the more opportunity for complaints and disputes. That is not a problem. The key lies in conflict resolution. Issues of subsidies and government assistance is bound to be more involved in the period ahead as the official response to the crisis, in the US and elsewhere has, of course, seen nearly unprecedented government action in the economy.