China-U.S. Trade Relations Plagued by Protectionism

China yesterday (Wednesday) slapped the U.S. chicken industry with the second set of tariffs in less than three months, further escalating tensions with its all-important Western trade partner.

China's commerce ministry said the new tariffs, which will impose charges of as much as 31.4% on imports of U.S. chicken, were a response to what it said were subsidies that created an unfair advantage for U.S. chicken producers.

China in February imposed a 105.4% duty on imports of U.S. poultry after a government investigation found that such products were being sold by the United States at less than the fair value. The new tariffs could altogether close off the market to U.S. poultry producers.

China and the United States have a long history of trade disputes, but these conflicts in recent years have escalated in both frequency and intensity as the two nations vie for global influence.

In 2007, Chinese exports were hamstrung by a slew of safety concerns surrounding such products as toys, toothpaste and pet food. Beijing accused the United States of overreacting and retaliated by rebuffing shipments of both Canadian and American meat products.

Later that year, the United States restricted imports of five different types of seafood from China, a measure Beijing criticized as unnecessary and excessive.

Then, as the financial crisis reached a fevered apex, China jabbed at the U.S. dollar - even suggesting it should be stripped of its role as the world's predominant reserve currency. U.S. officials fired back at the yuan, which they say Beijing keeps undervalued to support its exports.

Tensions seemed to be easing earlier this month when Chinese President Hu Jintao indicated he wouldn't completely rule out letting the yuan appreciate. But protectionist policies continued to bubble below the surface.

U.S. President Barack Obama last September imposed a 35% tariff on tires imported from China on top of an existing 4% duty. The order came mainly at the behest of the United Steelworkers union, which claims 5,000 union jobs have been lost since 2004 because low-cost Chinese tires flooding the market. Tire imports from China tripled between 2004 and 2008.

That tariff was followed in January by new duties on imports of Chinese steel. The U.S. International Trade Commission (ITC) voted unanimously on December 30 to impose duties between 10.36% and 15.78% on the pipes, which are used mostly by the oil and gas industries. Those new tariffs are designed to negate the subsidies that the U.S. government says China gives its steelmakers.

Once again, 'made-in-China' has fallen victim to U.S. trade protectionist measures," lamented an article in Xinhua, China's state-run newspaper. "Recent protectionist moves in the United States are closely linked to its sluggish economic growth and domestic political tussles, but a strong leader should have the guts to be more far-sighted and deliver the pledge he or she has made," the paper said referring to President Obama.

China's decision to counter with chicken tariffs could affect over $700 million worth of imports from the United States, which accounts for over 70% of China's total chicken product imports, China's Fair Trade Office said.

Chinese consumers favor chicken feet, providing a market for a product that is normally sold for scrap in the United States. Chicken feet can fetch prices 20 times higher in the Chinese market, according to the Financial Times.

Under the new chicken tariffs, importers of the chicken products will have to pay a deposit to the customs office according to the level of subsidy that the U.S. company is found to have received starting on April 30.

Major chicken producers Pilgrim's Pride Corp. (NYSE: PPC) and Tyson Foods Inc. (NYSE: TSN) will face duties of 4.9% and 11.2%, and dozens of other chicken producers will face varying rates of up to 31.4%, the Ministry of Commerce said.

The new tariffs mark the first time that China has imposed duties on imports of agricultural goods on the grounds of alleged subsidies. The Ministry of Commerce did not say how it had calculated the level of subsidies received by U.S. farmers.

In a separate statement, the Fair Trade Office said the tariffs were in response to considerable subsidies for chicken feed products such as corn and soybeans, which give American chickens a price advantage in international markets.

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