Buy American Tires Or The Baby Gets Run Over By A Hummer!

michelin-baby-in-tire-ad

Douglas McIntyre at Daily Finance:

The Office of the United States Trade Representative announced that it is imposing huge tariffs on Chinese tire imports. This move is certain to cause friction between the two countries. Already, Chinese officials have called the move protectionist and threatened similar penalties on US exports.

The International Trade Commission had determined that China had produced products similar to tires made in the US and sold them at prices low enough to force some US plants to close.

Trade representative Ron Kirk stated that “The three-year remedies, consisting of an additional tariff of 35 percent ad valorem in the first year, 30 percent ad valorem in the second, and 25 percent ad valorem in the third year, are being imposed after a finding by the United States International Trade Commission that a harmful surge of imports of Chinese tires disrupted the U.S. market for those products.”

Brad DeLong:

Why oh why can’t we have better Democratic presidents?

Barack Obama does something stupid.

[...]

Let’s see… 250 million cars in America… need 4 tires per car… need new tires every 2.5 years. 400 million tires a year… $1.4 billion dollars a year… 10,000 worker jobs saved… $140,000 dollars per worker-job per year.

Looks like we could (a) let the Chinese sell us tires, (b) tax each tire by $2.50, (c) pay each tire worker who loses his or her job $100K a year, and we come out ahead: American households have more money to spend on other things, China has more jobs to help what is still a very poor country grow, and tire workers have higher incomes and more leisure as well.

But, you say, it would be stupid to impose a $2 a tire tax and use the money to pay each laid-off tire worker $100K a year.

That’s the point: when the policy you are adopting is worse for everybody than a policy you agree is stupid, the policy you are adopting is best characterized as really stupid.

Leo Gerard, President of the Steelworkers, at HuffPo:

These are special trade safeguard rules called “Section 421″ that the Chinese had agreed to obey to gain entrance to the World Trade Organization (WTO). They are, however, laws that had gone unenforced by the U.S. in the past.

President Obama used these safeguard rules to impose tariffs on tires manufactured in China and imported into the U.S., following a recommendation by the International Trade Commission, an independent, bi-partisan group. The action made Obama the first president to execute sanctions under “Section 421.”

The International Trade Commission recommended sanctions under “Section 421″ four times before Obama took office. Nothing was done. The result was closed American factories, lost American manufacturing jobs, diminished American dreams.

Not this time though. Not this president. Obama showed he’s made of tougher stuff. By placing tariffs on imported Chinese tires, President Obama put himself in the line of fire for the jobs of U.S. workers, for the preservation of U.S. manufacturing and, ultimately, for the stabilization of the U.S. economy.

Daniel Indiviglio at The Atlantic:

Stupid is likely the best adjective to describe the action. It’s likely intended to save or create U.S. jobs. In reality, it will just drive up costs for consumers and anger the Chinese. They have reportedly already filed a complaint with the World Trade Organization.

The most obvious fear I see here is that China will retaliate. According to a separate article in the Wall Street Journal, they have already begun investigations into the U.S. “dumping” poultry and auto products in the Chinese market. The last thing you want during a global recession is a trade war. That would slow recovery across-the-board.

Naked Capitalism:

It would be better if we were not proven correct on this one, but when the US imposed stiff tariffs on imported tires from China late on Friday, we noted, “This could get interesting in a bad way.” The Chinese responded quickly over the weekend to announce they were investigating US auto parts and chicken, which together account for roughly as much as the disputed tires ($1.2 billion versus $1.3 billion for tires).

It is if nothing else getting interesting fast, and it certainly does not look good. The Financial Times branded the harsh reaction from China as elevating the US action to “a full-blown trade row.”

When trade volumes plunged late last year, most commentators expected a rise in protectionism. There hasn’t been much in the way of overt action, yet, perhaps in the hope that government intervention would work and the crisis would pass quickly.

But protectionism is driven by the desire to protect jobs. Unemployment has not peaked in the US, and some analysts suggest that China’s job losses are far worse than the 20 million often bandied about, more on the order of 30 to 50 million. So political pressure is set to intensify.

The New York Times treats the Chinese reaction as a surprise. But the tire tariffs relied upon a special provision in the WTO agreement for China’s entry that set a lower bar for trade violations than the normal anti-dumping sort. This is the first time that rule has been used as the basis for an action against China, and China may feel it important to fight that precedent.

Daniel Drezner:

When the Bush administration did what it did, it was fulfilling a campaign promise to the state of West Virginia steelwokers.  Fortunately, the rest of Bush’s winning political coalition was not seeking trade relief.  So the protectionist instinct pretty much ended with the steel tariffs — and everyone in the Bush administration knew that they’d be overturned by the WTO eventually.

With the Obama administration, however, this feels like the tip of the iceberg.  Most of Obama’s core constituencies want greater levels of trade protection for one reason (improving labor standards) or another (protecting union jobs).  This isn’t going to stop.  “Trade enforcement” has been part and parcel of Obama’s trade rhetoric since the campaign.  The idea that better trade enforcement will correct the trade deficit, however, is pure fantasy.  It belongs in the Department of Hoary Political Promises, like, “We’ll balance the budget by cracking down on tax cheats!” or “By cutting taxes I can raise government revenues!”  It.  Can’t.  Happen.

If I knew this was where the Obama administration would stop with this sort of nonsense, I’d feel a bit queasy but chalk it up to routine trade politics.  When I look at Obama’s base, however, quasiness starts turning into true nausea.

Developing…. in a very, very scary way.

Dave Schuler:

We face a conundrum. We have plenty of trade grievances with China and we’ve already filed a half dozen different complaints against China with the WTO that are awaiting resolution. Among our greatest concerns in trade negotiations are routine Chinese ignoring of U. S. intellectual property rights. Additionally, China’s de facto pegging of their currency to ours is arguably one of the forces behind the asset inflation that is one of the root causes of the economic problems we’ve been suffering for the last year or so.

However, as I watch these events unfold I can’t help but worry that we’re seeing the economic equivalent of the assassination of Archduke Ferdinand in which all of the great powers hurtle willy-nilly towards a truly stupid trade war.

Bloomberg:

China is demanding talks with the U.S. and has filed a complaint to the World Trade Organization on Barack Obama’s decision to impose tariffs on tires from the Asian nation.

“China’s requirement for talks with the U.S. is a proper practice to exercise its rights as a WTO member and is a practical move to defend its own interests,” Yao Jian, the spokesman for China’s Ministry of Commerce, said in a statement posted on its Web site today.

Obama announced duties Sept. 11 of 35 percent on $1.8 billion of automobile tires from China, acting on a complaint by United Steelworkers union against the second-largest U.S. trading partner. China said yesterday it will begin dumping and subsidy probes of chicken and auto products from the U.S.

UPDATE: Stephen Spruiell at NRO

Conn Carroll at Heritage

UPDATE #2: Noam Scheiber at TNR

Drezner responds

Scheiber responds to Drezner

Drezner and Reihan Salam at Bloggingheads

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1 Comment

Filed under China, Economics, International Institutions

One response to “Buy American Tires Or The Baby Gets Run Over By A Hummer!

  1. Moe

    I just want to say that for every tire factory that is shut down in the US, the same company opens two or three more around the world. Taxing the Chinese is not going to bring the factories back to the US.
    At the same time that Bridgestone was closing Oklahoma, was opening another one in Mexico, Brazil and China.
    I guess this is just to punish the Chinese government for something we don’t know.

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