Fears of a trade war between the United States and China intensified on Monday after Barack Obama launched action at the World Trade Organisation to stop Chinese auto industry aid from threatening jobs in the key electoral battleground state of Ohio.
With growth and jobs seen as vital in the race for the White House, the administration said it had begun a case at the WTO in Geneva against what the White House said were illegal export subsidies for cars and car parts.
The ratcheting up of the trade tension between the world’s biggest and second biggest economies prompted immediate tit-for-tat retaliation from Beijing, which announced its own WTO case against the US.
Trade experts said the tougher approach taken by Obama came as little surprise given the high level of unemployment. No president since Roosevelt in the 1930s has won an election with the jobless rate as high as 8.3% and the labour market has proved particularly weak in the so-called rust belt states of the midwest.
“Export subsidies are prohibited under WTO rules because they are unfair and severely distort international trade,” US trade representative Ron Kirk said in a statement. “China expressly agreed to eliminate all export subsidies when it joined the WTO in 2001.”
Obama’s decision to adopt a more aggressive approach towards China followed accusations by Mitt Romney, his Republican challenger in the presidential race, that the president has been too soft in the face of repeated violations of global trade rules.
China’s export-led growth model has resulted in a trade surplus averaging $25bn a month in 2012, attracting criticism from manufacturing lobbying groups and unions.
Jobs in the US auto parts sector dropped by roughly half between 2001 and 2010, while US imports of auto parts from China have increased seven-fold, according to the Obama administration.
Ohio, one of the most important of the six swing states likely to decide this year’s tight race for the White House, depends heavily on the auto industry, which was bailed out by Obama following the savage global downturn of 2008-09. Polls show that Obama has a slight edge in Ohio.
Scott Paul, executive director of the American Alliance for Manufacturing welcomed the administration’s move.
“The facts in the case are indisputable. China is subsidizing its auto parts sector, blocking our exports, and causing significant harm to workers and businesses in our nation,” he said. “Our auto assembly sector, now back on its feet, could be undercut by China’s cheating, causing irreparable damage to the heart of America’s productive economy.”
The WTO confirmed that the US had filed a case against China and that the two sides would now have a 60-day cooling-off period in which to seek an agreement. If the talks fail, a panel will be set up to decide whether US jobs had been outsourced as a result of subsidies that unfairly cut the cost of Chinese exports.
Sources said that in high-profile cases involving the WTO’s bigger members consultations often resulted in failure, and Beijing responded swiftly to the action taken by Obama by challenging measures adopted by the US to prevent the dumping of cheap Chinese goods, including kitchen utensils, steel, tyres, wood flooring, magnets and paper.
China has already won one WTO case against the US over its use of anti-dumping measures, which forced Washington to bring in new laws designed to be compliant with global trade law. Beijing today said that the new US law was also in breach of WTO regulations and affected exports worth more than $7bn.
“Chinese enterprises in an uncertain legal environment, in violation of the relevant rules of the WTO transparency and due process,” a spokesman for China’s ministry of commerce said.
Obama and Romney have both pushed China to the forefront as they seek to refocus their campaigns after a week dominated by foreign policy and the protests at US embassies across the Arab and Islamic world.
Tough action on China is one of the few foreign policy positions Romney has pushed in the campaign so far, claiming Obama’s weak response has harmed US workers. The president has countered with claims that Romney has investments in Chinese companies and outsourced jobs to China while running the private equity firm Bain Capital.