(AP/CNN)
Updated: 2007-04-05 09:18

China's paper industry association urged the United States to scrap new tariffs on Chinese paper, criticizing the measure Wednesday as a violation of free trade.

The Bush administration, facing increasing anger over soaring trade deficits, said Friday it would impose the tariffs on Chinese coated high-gloss paper.

"We hope the U.S. side will abandon the discriminatory policy against the Chinese paper industry, reconsider the decision and correct it as soon as possible," Chinese paper association said on its Web site.

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The statement did not say how the duties would affect domestic paper producers.

The U.S. Commerce Department imposed penalty tariffs ranging from 10.9 percent to 20.4 percent on imports of glossy paper from China. The tariffs will take effect next week on a preliminary basis and will become final after a further review by the department is completed in June.

The decision "was a protectionist practice and was against the principle of free trade," said the paper association.

China's Ministry of Commerce, through a statement on its Web site on Monday, said it was "strongly dissatisfied" with Friday's announcement and said it "strongly [required] the U.S. to reconsider the decision.

The growing U.S. trade deficit with China is a major source of irritation for U.S. lawmakers. American manufacturers say China keeps its currency undervalued by up to 40 percent, giving its exports an unfair price advantage.

The latest U.S. decision reverses a 23-year old policy of not applying countervailing duties on cheap goods from non-market countries like China.

Will US consumers be hurt?

Bush administration made its decision "willy nilly," giving no opportunity for public comment, said Erik Autor with the US National Retail Federation (NRF), the trade group that represents the nearly $5 trillion U.S. retail industry.

"And we complain about China not being transparent. I understand that the administration is under a lot of political pressure from Congress about the trade deficit with China, but this isn't appropriate," Autor said.

Industry watchers say retailers have never been a big proponent of countervailing duties. And for good reason. The retail industry imports most of what it sells in stores.

"Almost every toy sold in the United States is imported from China. 70 percent of shoes imported are from China. We import 70 to 75 percent of clothing, and 20 percent of that is from China," he said. "With consumer electronics, housewares, furniture, China is either the principle supplier to American retailers or one of the top suppliers."

This makes merchants and consumers especially vulnerable to the knock-on effect of trade tariffs against America's second-largest trading partner.

Autor said the United States already imposes duties against the dumping of cheap Chinese goods. "Dumping" refers to the practice of selling goods abroad below the cost of production or below the price of the product in the domestic market.

Autor argues that if the administration decides to extend anti-subsidy tariffs to consumer goods - on top of anti-dumping duties - it would amount to giving U.S. manufacturers two bites at the apple.

"For the same product that they're petitioning for fair trade measures, they get two remedies," he said, noting that this would also put the United States on thin ice under current World Trade Organization rules.

Such a move would hurt both consumers and sellers. 

"For retailers placing an order in China, they don't know if an anti-dumping case could be filed at any time on that product by a domestic manufacturer," Autor said. "And if duties are then applied on those imports, retailers not only have to pay the duties on arriving cargo but they also could be asked to retroactively pay duties on those products that were already sold in the U.S."

This impacts retailers' bottom line. Eventually, store chains could decide to pass on the extra costs to consumers in the form of higher prices, he said.

To that end, Wal-Mart, the world's largest retailer, which imports more than $20 billion of goods from China, is urging a "balanced approach."

"We urge a balanced approach to encouraging healthy two-way trade between the U.S. and China," Wal-Mart spokeswoman Amy Wyatt wrote in a statement e-mailed to CNNMoney.com.

Said Autor: 'At a time when we're trying to get China to adhere to its WTO obligations and open up its market to more U.S. goods, we're not setting a good tone for success."