WTO judges found last December that U.S. tariffs on $1.8 billion (11.5 billion yuan) of tires from China were legal. President Barack Obama imposed the duties of as much as 35 percent in 2009 under a so-called safeguard provision designed to protect U.S. producers from a surge in imports.

The Chinese government said the tariffs broke WTO rules and were a "serious case of trade protectionism." China lodged its complaint at the Geneva-based WTO against the levies just three days after Obama announced them.

Appellate judges upheld the initial panel's finding that the U.S. "did not fail properly to establish that rapidly increasing imports from China were a significant cause of material injury to the domestic industry," according to their decision, posted on the trade arbiter's website.

U.S. Trade Representative Ron Kirk called the appellate ruling a "tremendous victory" for the U.S. "as well as for American workers and manufacturers. The Obama administration will continue to fight for U.S. jobs and businesses," he said in a statement from Washington.

The ruling may sour relations that are strained by disagreements over Chinese controls on exports of raw materials and rare earths, exchange rates and U.S. antidumping measures on Chinese diamond sawblades and shrimp even as the two governments cooperate on the global economic crisis and North Korea.

Chilling effect
"The safeguard measure does not help reducing U.S. tire imports, but injures China's legitimate trading interests," the Chinese mission to the WTO said in a statement. "The U.S. measure only serves to chill its trading partners and distort international trade."

The complaints originally were filed by the United Steelworkers union, which represents 15,000 employees at 13 tire plants in the U.S. The union said Chinese tire exports to the U.S. tripled from 2001 to 2004 to 41 million tires and called for an annual import cap of 21 million.

After the tariffs were imposed, Chinese tire exports fell almost 24 percent last year from 2009 and 6 percent in the first half of 2011. By contrast, overall U.S. tire imports increased 20 percent last year and 9 percent in the first half.

China's trade surplus surged to 201 billion yuan in July, the most since January 2009. The surplus, a cause of friction with the U.S. and other trading partners, is boosting China's record 20.5 trillion yuan foreign-exchange reserves and pushing more cash into the nation's financial system.

Flexing muscles
The appellate judges' decision bolsters Obama's effort to show he's tough on enforcement.

By going after China, the president signaled unions and trade skeptics in Congress that he won't be lax in preventing breaches of a free-trade agreement with South Korea.

Congress and the government have been in a stalemate over the South Korea accord because Obama wants a guarantee Republicans also will approve an extension of U.S. aid to workers who lose their jobs to global competition.