After President Obama decided last Friday to slap steep duties on tire imports from China, the Chinese side moved swiftly to announce its anti-dumping investigation into exports of American automotive and chicken products. That has prompted many to fear an escalation in the conflict.

Fortunately, the likelihood of a full-blown trade war is low given the heavy interdependence of the two countries both economically and politically.

Still, the two sides must act sensibly to limit the fallout of a trade dispute that unfortunately has a lot of bearing on the auto industry.

Although tensions in bilateral trade are now at a new level, there are signs that neither side wishes to further stoke the heat.

In an interview with CNBC on Monday, President Obama said by imposing additional duties on tire imports from China, he was only enforcing an existing trade agreement. He also said he believes a trade war with China can be avoided.

China has been keen to urge restraint. On the evening before President Obama signed his bill, Wen Jiabao gave a clear indication of his country's position on free trade. "China will never take protectionist measures in international trade," said the premier in the opening speech of the World Economic Forum's "Summer Davos" conference, held this year in the northern port city of Dalian.

True, the Ministry of Commerce initiated its anti-dumping and anti-subsidy investigation on Monday. Yet it has not said which automotive products the probe will target. That leaves maneuvering space to control the range of the retaliation.

Moreover, on Monday the ministry also requested the two countries start using the WTO's trade dispute settlement mechanism to resolve the tire trade quarrel, signaling its eagerness to contain any rising tension.

In this age of globalization, China and the U.S. have developed a high level of interdependence in economic activities. Nothing can better illustrate this than the presence GM has built in China.

By working with Shanghai Automotive Industry Corp., General Motors now sells more Buick models in China than in the U.S.

In June, GM relocated the headquarters of its international operations to Shanghai. With GM's technical support, SAIC-GM-Wuling Automobile Co. has become the largest micro car maker in China and has started exporting its vehicles under the Chevrolet brand to other emerging markets.

Although the U.S. Steelworkers' Union – which supported the tire tariffs bill – has succeeded in nudging President Obama a step down the road of protectionism, GM's involvement in China is an illustration of the many, equally strong counteracting forces pushing in the opposite direction.

As two of the word's three biggest economies, China and the U.S. have too much to lose to let any trade dispute spin out of control.

It is time for the two sides make good use of all the available maneuvering space and trade dispute settlement channels to diffuse the tensions resulted from the fight over tire trade.