Obama tries to smooth over trade spat with China

An employee moves tyres at a tyre shop in Baokang, Hubei province, September 12, 2009.

NEW YORK (Reuters) - President Barack Obama promised China's President Hu Jintao on Tuesday that the United States would stay committed to free trade, as he sought to ease friction over a decision to slap sanctions on Chinese tires.

"The tire issue came up. The Chinese remain concerned about it," said a U.S. official, who briefed reporters on talks between the two leaders on the sidelines of the United Nations General Assembly.

"The president noted that we had differences on the issue and said that the U.S. remains firmly committed to free trade and resisting protectionism," the official said.

Chinese officials have labeled the tire decision a dangerous act of protectionism and have said they would investigate whether imported U.S. chicken parts and autos were being dumped on the Chinese market.

Some U.S. critics of the decision to impose a new 35 percent duty on Chinese tires said it sent the wrong message in the run-up to a meeting of the Group of 20 biggest economies in Pittsburgh on Thursday and Friday.

But the White House has said the decision was merely an enforcement of trade laws.

Obama, who plans to visit China in November, also discussed with Hu a top issue for the G20 -- a call for more balanced global growth.

"There was discussion of the importance as the global recovery proceeds that it be on a more balanced basis than it has been in the past," the official said.

Some economists believe imbalances in the world economy between export-driven economies like China and countries like the United States, which consume heavily, helped to set the stage for the 2008-2009 financial crisis.

AWASH IN CASH

Awash in cash from its trade surplus, China invested heavily in U.S. government debt securities, which helped to lower U.S. interest rates. Some economists say this helped to fuel a bubble in the housing and subprime mortgage markets.

Chinese officials say gaps in the U.S. financial regulatory system were the main culprit behind the financial crisis.

The official said the United States was moving away "from an extreme consumption-led economy toward greater savings and toward management of our fiscal issues."

He said the United States wants China to move "toward an economy based on greater consumption."

Prior to the last G20 meeting in April, Chinese officials raised doubts over whether the U.S. dollar could retain its role as the world's global reserve currency. But the official said that topic did not come up in Tuesday's talks.

Obama also discussed Iran and North Korea with Hu.

The United States has been trying to rally China and Russia to help ratchet up pressure on Iran, which Washington accuses of using its nuclear program as cover to acquire a nuclear weapon. Tehran says its nuclear enrichment program is for civilian energy uses.

"The president emphasized the centrality of the Iran nuclear issue to U.S. national security interests," the official said.

The official said Obama talked of the need for solidarity in efforts to persuade North Korea to abandon its nuclear weapons program.

Obama "stressed the importance of the U.S. and China continuing to vigorously implement the U.N. resolutions and for there to be demonstrable solidarity between the U.S. and China on this issue," the official said.

(Editing by Paul Simao)