U.S. slaps tariffs on Chinese imports

Commerce Department reverses long-standing trade policy and will begin to impose tariffs on some subsidized goods from China; stocks head lower on the news.

By Parija B. Kavilanz, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- The U.S. Commerce Department announced Friday that it will reverse its decades-long policy and begin to impose trade tariffs on some subsidized imports from China.

The first duties will be applied to imported "coated-free" paper from China, U.S. Commerce Secretary Carlos Gutierrez announced during a press conference in Washington.

The news spooked Wall Street. U.S. stocks reversed course and headed lower following the announcement. The dollar weakened against both the euro and the yen.

"As global barriers come down, it's critical for our companies and workers to have a level playing field," Gutierrez said in a press conference call.

According to the U.S.-China Business Council, the Commerce Department has followed a two-decades long practice of not applying countervailing duties to offset government subsidies in non-market economies like China and Vietnam.

U.S. manufacturers, hit hard by a record $763.6 billion trade deficit which continues to displace domestic production and jobs, have long opposed that policy and are lobbying Congress for tougher fair trade measures.

Gutierrez said his agency felt the need to revisit the policy in response to the changing global political and economic landscape.

"In the 1980s and 1990s, we found that communist economies did not change their behavior when they received subsidies. But now they do change their behavior. The China of today is not the China of years ago. China is no longer part of the Soviet bloc."

Gutierrez said the trigger for the major policy shift was a petition from a U.S. paper manufacturer, Dayton, Ohio, based NewPage (Charts) Corp., that has been asking for tariffs to be imposed on paper imports from China. Those imports are valued at $224 million.

Gutierrez said the U.S. would set a preliminary countervailing duty level of 10.9 to 20.35 percent on the value of coated paper imports from China.

Meanwhile, the National Association of Manufacturers (NAM), the nation's largest industrial trade association, applauded the Commerce Department's decision.

"Many manufacturers tell me that Chinese products sell for less than the cost of the raw materials in the product, meaning that they are likely being subsidized," NAM president John Engler said in a statement. "Until today there was no remedy. Now we are beginning to level that playing field."

However, some experts believe the the latest move by the DOC is more symbolic and politically motivated rather than a genuine effort to address the record $232.5 billion trade deficit with America's second largest trading partner China.

"It's pure politics," said Nariman Behravesh, chief economist with Global Insight, an economic and financial forecasting firm. He pointed out that both China and the United States don't necessarily have a "clean" record when it comes to their trade policies.

"This is an effort by the government to hold off further protectionist moves on the part of Congress who say they want to be tougher on trade," Behravesh said.

Some U.S. lawmakers, responding to growing resentment from U.S. producers have pressured the Bush administration to revise its China trade policy.

Behravesh said the Bush administration likely yielded on the China subsidies issue because it's under the gun to get Congress to agree to its free trade proposals, including the on-going Doha Round of the global trade talks.

The United States and its key trading partners like the European Union, China, India and Brazil are scurrying to reach a worldwide deal to boost trillions of dollars in cross-border trade in farm and industrial goods.

Trade analysts say the clock is ticking for the Bush administration to get a breakthrough before the July 1 expiration of the so-called "fast-track" authority that allows the president to speed trade deals through Congress for a yea or nay vote without considering any amendments.

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