Obama Is Wrong to Impose Punitive Tariffs on Chinese-Made Tires

I read in yesterday’s Washington Post and Wall Street Journal that President Obama has decided to approve the United Steelworkers’ petition and impose punitive tariffs on Chinese-made tires, a move I argued against just days ago.

Although news of this decision is being drowned out by the flurry of commentary and speculation regarding health care reform, I believe it will prove a fateful moment in this Administration. This was the President’s first clear-cut decision on trade, and it sends a chilling message to all of our partners around the world. His decision might make some people feel good, but that feeling will come at a real cost in American jobs and competitiveness.

It may also lead to a destructive cycle of retaliation and counter-retaliation with China, which could do real damage to the world economy if it gets out of hand. It will be interesting to watch where the Chinese choose to hit back, as they have promised to do. At the very least, President Obama’s decision will cast a serious cloud over his planned visit to Beijing in November.

Comments

[van Schayk:]

Trade is a positive sum game. It is also a game where hardball tactics are sometimes necessary. There is little doubt that all nations seek tactical advantage and the Chinese are no exception. In this case the Chinese clearly protect their domestic tire industry. For example, Cooper Tires, in order to invest in China, was required to export 100% of their production. Barring better rules, the best way to maintain public faith in integrity of the world trading system is to allow for proportionate response when it is called for.

Sep 14 12:09 PM

[Andrew Butter:]

Sounds like a re-run of the 1930 Smoot-Hawley Tariff Bill which destroyed Americas export markets

Sep 14 12:11 PM

[Billy Gee:]

The tire tariff dustup is diverting attention from China's further increase iin its trade deficit with the U.S. (60% of the goods deficit with the U.S.). The tire tariff is not Smoot -Hawley like or even similiar but what is <A HREF=www.ustr.gov/sites/def...;" that seven years after China's WTO accession many U.S. industries complain they face significant nontariff barriers to trade...these examples include regulations that set high thresholds into service sectors such as banking, insurance and telecommunications, selective and unwarranted inspection requirements for agricultural imports... Many U.S. industries have also complained that China manipulates technical regulations and standards to favor domestic industries"</A>

Sep 14 01:21 PM

[Fighting Yoda:]

These types of trade wars are inevitable and are long time coming. US has a huge price disadvantage - our labor costs are way too high as compared to China etc. There are people who believe US should compete and export high-tech and other goods - there is limit to that. Also rest of the world has caught up with US at least in all basic technologies especially manufacturing, once the mainstay of US industry and commerce.

US has to get back to increasing its manufacturing base - we simply cannot shuffle paper around (as in Wall Street) and flip burgers (services) - that is just wage stagnation - leads to lower standards of living - we are very much heading that way.

It is not just about unions it is the jobs stupid. What part of job losses do free market proponents don't see. Where do you see job growth drivers - green? That is just a pipe dream.

Unregulated free trade has failed and we lost - our Trillion $ deficits and increasing is ample proof.

Tires are just a symptom, tip of the iceberg - there are many other products where the same problem exists- we have lost all our industries - textiles, electronics, now autos on extended life support.

Does anyone think you can export stuff to China easily – the bureaucracy out there would kill you, price and margins are crippling. Only way to sell out there is to manufacture there – that is what all manufacturers are forced to do (like GM etc). That only leads to Chinese jobs, not jobs here.

Last 20/30 years there was phony prosperity in US amidst huge trade deficits – simply propped by asset bubbles and unsustainable debt. So the foolish economists concluded free trade must be good. But even after the phony economy has collapsed (lot more yet to come) - the lesson should have been learnt - but unfortunately fools never learn.

Trade has to be a zero sum game - unfortunately that has not worked that way. The only solution is either trade barriers or accept lower standards of living - somewhere between what we have now and current Chinese. Are the free market proponents ready for that? Likely not.

Sep 14 02:15 PM

[The Geoffster:]

Anyone buying Chinese tires probably has Chinese dry wall in their house.

Sep 14 02:22 PM

[herd mentality:]

what more can be done by this administration to sabotage our economy in the long run. Why do humans always fix the bridge AFTER it falls down? Why can't politicians think past 30 days?

Sep 14 03:21 PM

[User 357705:]

This administration? Obama has only begun to double down on GWBush's mistakes.


On Sep 14 03:21 PM herd mentality wrote:

> what more can be done by this administration to sabotage our economy
> in the long run. Why do humans always fix the bridge AFTER it falls
> down? Why can't politicians think past 30 days?

Sep 14 03:36 PM

[buybigtires:]

The USW is wrong on this one, and so is Obama. He has no clue as to what is going on the tire industry. The main reason for the loss of these jobs is a lack of demand for new cars, and steep cuts in the mining and construction industry.

Sep 14 03:41 PM

[Alfredo Mar...:]

I hope this angers China enough that they retaliate by stop buying our debt.

If China stopped buying our treasuries, that would put a stop to the printing presses, and we would have to start living within our means.

Sep 14 04:47 PM

[Nettligent:]

Would you drive around town with low quality Chinese tires?

Sep 14 09:03 PM

[carbonblack:]

One big loser is Cooper Tire and Rubber, which for many years was the go to low cost producer. The lack of reinvestment, the lack of leadership and changing market conditions have crippled Cooper. Now that their JV are next to worthless, they have no domestic capability that can fill the low end market.
There are no other American tire makers that are interested in the low end market, and many consumers are now going to be paying much more for their tires.

Sep 14 10:08 PM

[NaomiY:]

Maybe. Or more likely is that Obama will keep the printing press going and inflate his way out of debt.

What amaze me is that of everything Obama can push for, he choose low end tires. The economics benefits will probably be bigger and sustainable if he pressure China to order another 787 Dreamliner or two.


On Sep 14 04:47 PM Alfredo Martinez wrote:

> I hope this angers China enough that they retaliate by stop buying
> our debt.
>
> If China stopped buying our treasuries, that would put a stop to
> the printing presses, and we would have to start living within our
> means.

Sep 14 10:18 PM

[realist len:]

I believe that we should protect what is left of our manufactoring base. If we continue to let the Chinese bulldoze our manufactoring base at every turn we eventually have to say hey enough. They are the exporters not us we have to start to level the playing field as far as manufactoring in this country . I don't think a trade war will ensue but if it does who do you think will win. If the over confident Chinese keep pushing what do they expect sooner or later we will push back. We are getting closwer and closer in this country to having NO BLUE COLLAR work force if we continue to let China have its way with millions of cheap subsided goods being shipped into this country every day.

Sep 14 10:22 PM

[FB5000:]

Tariffs are ALWAYS very bad policy.

All they do is hurt consumers and mis-allocate capital. In effect a tariff is a regressive tax with very little benefit.

The idea that jobs are saved is illusory. No jobs are saved and the effect is to tie up calital in industries that are not as productive in other words they actually hurt the economy.

sometime people say - other countries have tariffs we should retaliate. It does not sork that way. the tariff is like pointing a gun at yourself. The only one hurt is th eone putting up the barriers. If other countries have tariffs - let them. All they do is hurt themsleves - make their economy less prodctive and drive capital toward the places that have less distortion.

Obama - does not understand economics and has poor advisers. The Truck ban on trucks from Mexico was another sop to the Unions This is a bad trend and the single most threatening thing that will derail recovery.

The US needs cheap imports, free flow of capital and productivity. These plus rule of law and property rights is what drives an economy. The tariff brings none of those things. It is a bad day indeed for good policy.

Sep 15 12:23 AM

[FB5000:]

You are wrong.

Manufacturing is declining everywhere as a % of GDP and yet the US manufactures more today than at any time in its history. So does the rest of the world. Productivity is what is leading to a decline in jobs. That and the fact that people have more and better options.

If you had protected the horse and buggy industry with high tariffs what would you have today? Think about it.

What is great about the US econoy is the dynamism the creative destruciton. Yes there is dislocation but it is temporary. Tariffs create the opposite - they are statist - they try to preserve and in so doing fail - what you end up is an economy that resembles a dusty museum with lots of horse and buggy makers while the the next Google or Apple or Microsoft or Boeing or Fedex or McDonalds or Starbucks or IBM or Oracle or you name any number of the 1000's out there - are born soemwhere else. All you end up doing is limiting your own future to that of a museum curator an underpaid oddity while the world passes you by.










On Sep 14 10:22 PM realist len wrote:

> I believe that we should protect what is left of our manufactoring
> base. If we continue to let the Chinese bulldoze our manufactoring
> base at every turn we eventually have to say hey enough. They are
> the exporters not us we have to start to level the playing field
> as far as manufactoring in this country . I don't think a trade war
> will ensue but if it does who do you think will win. If the over
> confident Chinese keep pushing what do they expect sooner or later
> we will push back. We are getting closwer and closer in this country
> to having NO BLUE COLLAR work force if we continue to let China have
> its way with millions of cheap subsided goods being shipped into
> this country every day.

Sep 15 12:34 AM

[deskjock:]

the way to stimulate the manufacturing base in the US is by easing restrictions and burdens on US manufacturers instead of raising tariffs on competitors.

the way to level the playing field is to match the advantage of your competitors.

US manufacturers are tied down by ridiculous rules (most are demanded by unions), restrictions, and taxes. get rid of them and the manufacturing base in the US can compete with China. raise the tariff on Chinese products and you simply raise the prices of goods that US consumers HAVE TO BUY FROM OVERSEAS since they are not available here at a lower price. even when prices on chinese goods are raised, it would still be lower compared to US produced items, and the chinese can simply lower their products prices in order to obtain an edge. US products on the other hand can't lower their prices anymore than the chinese can.

what Obama did may be music to the ears of those who are clueless about what the actual playing field looks like (high taxes for US businesses with high wages demanded by unions and ridiculous mandates imposed by the federal government - CAFE anyone) but it would not bring the manufacturing base back to its glory days. taxes, unions, and regulations destroyed the US manufacturing base not chinese manufacturers. fix the actual problems and you'll bring back manufacturing jobs, imposed higher tariffs and you'll simply attract a trade war that we can not win.

Sep 15 06:34 AM

[coreopsis:]

Are you familiar with the iPhone? You've probably never heard of it. Nor the jet engines that GE is buying from China. Two homilies occur to me as being particularly applicable to the Yank mindset:

'A little ignorance is a dangerous thing'.

'Be careful what you wish for'.

You'll doubtless be happy when trinkets come from Malawi and advanced medical devices from China. Unfortunately, the likelihood that you and yours will have a minimum wage job will increase.

"Sorry, but we just followed bobowhite's advice on seeking alpha" --
Minister of Commerce, China


On Sep 14 10:39 AM bobbobwhite wrote:

> If all of us in America would stop buying useless "gift shop" item
> purchases of junk

Sep 15 11:49 AM

[coreopsis:]

NaomiY mentions two products here: low end tires, and the possibly apocryphal Dreamliner. The US market needs the former from an economic standpoint, the Dreamliner can't be produced to schedule, specs or cost.

Not understanding the difference is so, well, totally American.


On Sep 14 10:18 PM NaomiY wrote:

>
> What amaze me is that of everything Obama can push for, he choose
> low end tires. The economics benefits will probably be bigger and
> sustainable if he pressure China to order another 787 Dreamliner
> or two.

Sep 15 12:01 PM

[coreopsis:]

Dear Negligible Intelligence, why I'd no more drive around with tires, than drink cheesy American 'champagne', drive a cheesy American car, or take a cheesy trip to cheesy Las Vegas. Thanks for reminding what a cheesy society the US is.


On Sep 14 09:03 PM Nettligent wrote:

> Would you drive around town with low quality Chinese tires?

Sep 15 12:05 PM

[Innocex:]

What is the US going to do when China starts selling their US debt? The likely answer to that question is that the US will start dissuading trade with China... Is this tire deal the first salvo in retaliation for China recently expressing worries about our government's ability to curb inflation?


On Sep 14 04:47 PM Alfredo Martinez wrote:

> I hope this angers China enough that they retaliate by stop buying
> our debt.
>
> If China stopped buying our treasuries, that would put a stop to
> the printing presses, and we would have to start living within our
> means.

Sep 15 03:17 PM