Obama's Tire Tariff Could Help the U.S. Win a Trade War with China 34 comments
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I'm just as excited as United Steel Workers (USW) President Leo W. Gerard about President Obama's decision to uphold the decision of the US International Trade Commission (USITC) and impose three years of tariffs upon inexpensive Chinese on-road tires.
In a September 13 blog posting, Gerard enthusiastically praised Obama's decision. This is not surprising. His own union had originally filed the case on behalf of its tire workers. Here is a selection from what he wrote:
President Obama used these safeguard rules to imposed 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.
Gerard is correct that President Bush never enforced Section 421. But in fairness to Bush, he did impose selective tariffs against specific Chinese products under other sections of US law. For example:
- Steel Pipe. President Bush's Commerce Department imposed import duties on Chinese manufacturers of steel pipe, including 700% duties on one Chinese pipe manufacturer and 106% duties on several other Chinese pipe manufacturers and exporters.
- Off-Road Tires. President Bush's Commerce Department set 210% duties on some brands of Chinese off-road tires.
But there is a big difference. President Bush's cases dragged on for years. The USW's tire case under Section 421 was quick and easy to prove. All the USW had to show was that increased market share by Chinese tire producers has been throwing American workers out of work. Gerard pointed to the quickness of the action in his blog piece. He wrote:
We filed for relief under “Section 421” for two reasons. One is that it provides quicker relief than other trade remedies. The other is that China consented to its provisions. When China wanted to get into the World Trade Organization in 2000, it secured U.S. support by agreeing to abide by Section 421 until 2013. Section 421 was designed to protect the U.S. economy by providing ways to combat unfair and damaging surges of particular Chinese imports.
Indeed the USW case proceeded very quickly. It was filed on April 20. The hearings were held on June 2. The USITC made its decision on June 19. And already the Obama administration has decided that it will enforce the decision. Thus, there is now a quick and easy remedy available to almost all American manufacturing industries that are competing with growing Chinese penetration of their markets.
The Winnable Trade War
By itself, Obama's decision will do little more than did the Bush decisions. It may simply be a one-time gift to his new manufacturing czar, Ron Bloom, the former special assistant to the president of the USW who has an MBA from Harvard.
But if other American industries are allowed to seek and get relief through Section 421 petitions, China will react. My guess is that the Chinese would respond by using their complete control over the exchange rate between the yuan and the dollar in order to make Chinese products less expensive and American products more expensive.
This action would start a trade war which the United States could easily win by simply insisting upon balanced trade, since we import $1 from China for every 25¢ that China imports from us.
Bloom could point out to China that WTO rules let any country that is running a dangerous trade deficit restrict imports from any country with whom it is running that deficit. He could force China to take down their many tariff and non-tariff barriers to imports from America. The result would be greater demand for American exports and renewed investment in the American manufacturing sector.
Until the United States insists on balanced trade by tying the value of our imports from China to their imports from us, the Chinese government will continue to deliberately expand its trade deficit with us so that they can steal market share from our producers, American manufacturing workers will continue to lose their jobs, American steel workers will continue to see demand for their products shrink, and the American economy will continue to stagnate.
At present, the short- and long-term prospects for the American economy look dismal. But this tire case could change all of that. In order to mollify his union supporters, President Obama finally did something that could help. At the moment, what's good for the USW is good for America.
Disclosure: No Positions
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You are correct. Smith did not specifically say "GDP." He was saying that an economy's productivity was more important than the amount of gold the country had. GDP came later as a way to measure productivity.
Howard
On Sep 15 11:06 AM coreopsis wrote:
> Smith said nothing of the sort. Richman, stop perpetuating ignorance.
>
>
> Smith published Wealth of Nations in 1776. GDP as a concept was introduced
> in the early 20th century.
>
The author is clueless and exhibits typical American hubris - the Chinese will ALWAYS buy our bonds, stocks, etc. The author ignores what is going on currently with China buying all sorts of other assets.
There would be NO winner in a trade war. But I would much rather be in China's position - with $2 trillion lying around and respected (not loved) everywhere around the globe, rather than the US who is disliked like most moochers are disliked and who must rely on the kindness of strangers buying our debt just to keep the lights on in the country.
I do not claim that China will "ALWAYS buy our bonds, stocks, etc." I actually expect them to pull the plug on the dollar once they have finished stealing what they wish to steal of our industry.
My guess is that in about 3 years they will allow the dollar crash to occur, especially if they can succeed in the meantime with getting their dollar reserves converted into SDRs by the IMF so that that will be guaranteed by the values of a basket of currencies.
Howard
On Sep 15 01:25 PM Tony Daltorio wrote:
> If anyone is unsure why the US is going downhill so swiftly, just
> read this article and what passes for "thinking".
>
> The author is clueless and exhibits typical American hubris - the
> Chinese will ALWAYS buy our bonds, stocks, etc. The author ignores
> what is going on currently with China buying all sorts of other assets.
>
>
> There would be NO winner in a trade war. But I would much rather
> be in China's position - with $2 trillion lying around and respected
> (not loved) everywhere around the globe, rather than the US who is
> disliked like most moochers are disliked and who must rely on the
> kindness of strangers buying our debt just to keep the lights on
> in the country.
There is a real misunderstanding of who had more to lose in a trade war (China) who exports over $200B last year and imported far less. They are asking for talks at the WTO in a bid to calm things down, an escalation will shot down the factories in China and cost US consumers some inflation offset by income growth. My detailed post below.
seekingalpha.com/insta...
On Sep 15 08:41 AM Howard Richman wrote:
> Old Guy,
>
> Let's suppose that we buy tires from Vietnam. Vietnam doesn't practice
> mercantilism, the strategy of maximizing exports and minimizing imports.
> They will buy imports with the money that they earn from the tires.
> Whoever they buy from will buy other imports. The result will be
> that the United States will get more exports.
>
> China is the black hole in world trade. US economic demand goes into
> China and never gets reflected back. As I pointed out, China buys
> only 25 cents from us for every $1 we buy from her.
>
> Howard
>
Why would chinese knowingly undermine nearly a trillion in investments? They will try to diversify slowly because of the size of their holdings and the loss they would take by selling too quickly. The irony of this is that with size of their domestic consumer base, china has the ability to grow as rapidly as the US did at the turn of century by meeting domestic demand, exports came later.
On Sep 15 01:36 PM Howard Richman wrote:
> Tony,
>
> I do not claim that China will "ALWAYS buy our bonds, stocks, etc."
> I actually expect them to pull the plug on the dollar once they have
> finished stealing what they wish to steal of our industry.
>
> My guess is that in about 3 years they will allow the dollar crash
> to occur, especially if they can succeed in the meantime with getting
> their dollar reserves converted into SDRs by the IMF so that that
> will be guaranteed by the values of a basket of currencies.
>
> Howard
US is the one which refuses to export to China to reduce the trade deficit gap. China wants to import high tech (which uses highly paid workers) products, including weapons, nuclear technology, space technology etc. In a free market with fair trade practice and no government interferance, China would export cheap manufactured goods to US and US would export high tech gears to China, and we would be even.
So, don't blame China for the trade gap. When you don't want to make money for whatever reason, don't blame others for getting rich.
On Sep 15 08:59 AM Howard Richman wrote:
> Several commenters worry that China will stop buying American financial
> assets. They fail to understand China's mercantilist trade policy.
> China's loans to the United States are not in danger. And we would
> be better off without them!
>
> In order to manipulate trade balances, the Chinese government buys
> dollars. In order to keep the Chinese people from spending those
> dollars they "sterilize" them from trade by buying American assets.
> In effect, they loan the dollars earned from trade back to the United
> States.
>
> These actions won't end so long as China chooses to run trade deficits
> with the United States. The mix of their loans to the United States
> might change, but the fact that they are loaning money to the United
> States will not change.
>
> They will continue to buy Treasury Bonds. They will continue to indirectly
> buy money market funds through foreign banks. They will continue
> to buy American stocks. They don't do so out of altruism. They do
> so in order to steal our industry.
>
> Our private savings rate would be sufficient to finance our own financial
> needs without a depression if we simply balanced trade and government
> budgets at the same time. Borrowing more from China just makes our
> economic situation worse.
On Sep 15 07:01 PM grey road wrote:
> A time will come when they will stop buying treasuries. It won't be tomorrow or in the next few years but it will be soon.. especially 30 year treasuries.
On Sep 15 08:41 AM Howard Richman wrote:
> China is the black hole in world trade. US economic demand goes into
> China and never gets reflected back. As I pointed out, China buys
> only 25 cents from us for every $1 we buy from her.
>
> Howard
>
Thanks for your comments. Your most telling argument was:
"I am not so pleased as you that the United States gains moral highground when it engages in unilateral free trade with China. I would rather see economic high ground."
Personally, I don't see how you can seperate them. But, in your case, what about the law of precedent?
If America has been actively protectionist for the last 25 or so years -- which she has, and well before China's moves -- discreetly applying its own self-serving economic rules and regs via institutions like the WTO and the IMF to "help under-developed countries" for decades via The Washington Consensus(Google it sometime -- it's harsh, blatantly protectionist regs and policies will surprise even you), then how can you blame China for adopting her own discreet protectionist policies in reply? If your still in doubt, a read of "Super Imperialism: The Economic Strategy of American Empire" by Michael Hudson would, perhaps, fullly clarify the one-sided economics of America's intent over the last quarter century.
After all, China has had plenty of time to learn and copy The Master here, right? Like I said, there's a precedent here that has been set a long time ago by the US.
Therefore, how can you complain about China's protectionist policies, when the American government has been protectionist for decades now?
Or is it to be one economic law for America and another for the Rest of the World?
This statement is very peculiar. GDP is indeed the wealth of Nations, but is it good for that wealth to be wholly dependent on foreign credit feeding insatiable US debt, as compared with China, whose economy is wholly based on production with the reward of savings? Do you regard America's current deficits as no problem then? Do you regard America's national debt of $12 trillion OK? Do you regard America's Fiscal Debt of £65 trillion trivial and manageable? It is also mainly US govt. Keynesian policies that are creating all this unmanageable debt, not just trade with China.
Hardly a balanced economy, in fact Adam Smith's jaw would probalby bounce off the ground and hit the ceiling if he saw America's economic state today.
On Sep 15 11:06 PM Bill Jencks wrote:
> Howard,
>
> Thanks for your comments. Your most telling argument was:
>
> "I am not so pleased as you that the United States gains moral highground
> when it engages in unilateral free trade with China. I would rather
> see economic high ground."
>
> Personally, I don't see how you can seperate them. But, in your case,
> what about the law of precedent?
>
> If America has been actively protectionist for the last 25 or so
> years -- which she has, and well before China's moves -- discreetly
> applying its own self-serving economic rules and regs via institutions
> like the WTO and the IMF to "help under-developed countries" for
> decades via The Washington Consensus(Google it sometime -- it's harsh,
> blatantly protectionist regs and policies will surprise even you),
> then how can you blame China for adopting her own discreet protectionist
> policies in reply? If your still in doubt, a read of "Super Imperialism:
> The Economic Strategy of American Empire" by Michael Hudson would,
> perhaps, fullly clarify the one-sided economics of America's intent
> over the last quarter century.
>
> After all, China has had plenty of time to learn and copy The Master
> here, right? Like I said, there's a precedent here that has been
> set a long time ago by the US.
>
> Therefore, how can you complain about China's protectionist policies,
> when the American government has been protectionist for decades now?
>
>
> Or is it to be one economic law for America and another for the Rest
> of the World?
I agree with you. I regard America's current deficits as a problem including both our trade deficit and our budget deficit. I also regard our accumulated debts as a problem, including both our foreign debt and our government debt.
I think that the ideal solution is for us to start balancing both: trade and budgets. The two go together extremely well. Balancing our budgets without balancing trade would likely lead to a deeper recession. Balancing trade without balancing budgets would likely lead to inflation.
I believe that the government could achieve macroeconomic stability through a combination of three policies:
1. balanced budgets
2. balanced trade
3. balanced money supply
See our piece in the American Thinker on this topic, "Keynesian Borrowing Won't Solve Our Economic Problems":
www.americanthinker.co...
Howard
On Sep 15 11:25 PM Bill Jencks wrote:
> "The issue at stake between the United States and China is GDP, which
> as Adam Smith pointed out is the real "wealth of nations". Balanced
> trade would lead to investment in American production which would
> enhance America's GDP. Growing trade deficits would keep us in a
> state of perpetual depression. "
>
> This statement is very peculiar. GDP is indeed the wealth of Nations,
> but is it good for that wealth to be wholly dependent on foreign
> credit feeding insatiable US debt, as compared with China, whose
> economy is wholly based on production with the reward of savings?
> Do you regard America's current deficits as no problem then? Do you
> regard America's national debt of $12 trillion OK? Do you regard
> America's Fiscal Debt of £65 trillion trivial and manageable? It
> is also mainly US govt. Keynesian policies that are creating all
> this unmanageable debt, not just trade with China.
>
> Hardly a balanced economy, in fact Adam Smith's jaw would probalby
> bounce off the ground and hit the ceiling if he saw America's economic
> state today.
I certainly agree with you on those three points. But, President Obama appears to be still spending rashly. Even notable economists like Krugman are saying that he should actually be spending more!! When will they admit that America has accrued ENOUGH debt?
My consternation lies in why have there been no plans laid, as yet, to balance the deficits and pay back the massive government debts. Surely this is one economic point which, if not adequately tended, could bust America. Currently there is no overt attempt by the US governemnt to balance its budget or to balance its money supply. As for balancing trade, how is getting into a painful trade war with China going to help this problem?
The current monetary policies of Obama are so economically illogical at the moment, I am seriously coming to believe that he actually wants to bust the dollar and, with it, the American economy.
After all, US Government planners aren't that dumb, are they?
I wrote an article on the Washington Consensus some time ago which might help to prove these points:
slowsmile.hypocrisy.co.../
For all these biased reasons, I very much doubt that the Chinese can win their current case at the WTO tribunal.
On Sep 15 04:53 PM johnqh wrote:
> First, get some facts.
>
I direct you to Book IV of the "Wealth of Nations". In this book Smith is making the argument that is related to the title. He is saying that the wealth of a nation does not consist of its gold and silver, it consists of the produce of the country.
Howard
You wrote, "Another assertion that proves Richman has never even read the Cliff Notes version of Wealth of Nations. Smith established that the 'wealth' of nations resided in three components: land, labor, and capital. Productivity as a driver of his theory is absent."
Thank you for your close attention to a possible error that I may have made in one of my comments. Indeed I routinely make errors in comments, as I rarely double check them but often speak off the cuff, from memory as it were. And memory is indeed faulty.
However, in this one case, you are mistaken and I am correct. As far as productivity is concern, it is a central concept in "The Wealth of Nations." The first chapter is about how productivity is obtained in a pin factory through division of labor. It is a classic chapter and very well written.
Of course, first chapters are not an entire book. So I urge you to turn to the beginning of Book IV, the chapter in which Adam Smith discusses the topic that is named in his title. (Often titles are indicators of the centrail thesis of the book.)
As I noted in my last posting, the "wealth of nations" is indeed discussed in this chapter, as is indicated by the first two paragraphs which I quote below:
"That wealth consists in money, or and silver, is a popular notion which naturally arises from the double function of money, as the instrument of commerce and as the measure of value. In consequence of its being the instrument of commerce, when we have money we can more readily obtain whatever else we have occasion for than by means of any other commodity. The great affair, we always find, is to get money. When that is obtained, there is no difficulty in making any subsequent purchase. In consequence of its being the measure of value, we estimate that of all other commodities by the quantity of money which they will exchange for. We say of a rich man that he is worth a great deal, and of a poor man that he is worth very little money. A frugal man, or a man eager to be rich, is said to love money; and a careless, a generous, or a profuse man, is said to be indifferent about it. To grow rich is to get money; and wealth and money, in short, are, in common language, considered as in every respect synonymous.
"A rich country, in the same manner as a rich man, is supposed to be a country abounding in money; and to heap up gold and saver in any country is supposed to be the readiest way to enrich it. For some time after the discovery of America, the first inquiry of the Spaniards, when they arrived upon an unknown coast, used to be, if there was any gold or silver to be found in the neighbourhood. By the information which they received, they judged whether it was worth while to make a settlement there, or if the country was worth the conquering. Plano Carpino, a monk, sent ambassador from the King of France to one of the sons of the famous Genghis Khan, says that the Tartars used frequently to ask him if there was plenty of sheep and oxen in the kingdom of France? Their inquiry had the same object with that of the Spaniards. They wanted to know if the country was rich enough to be worth the conquering. Among the Tartars, as among all other nations of shepherds, who are generally ignorant of the use of money, cattle are the instruments of commerce and the measures of value. Wealth, therefore, according to them, consisted in cattle, as according to the Spaniards it consisted in gold and silver. Of the two, the Tartar notion, perhaps, was the nearest to the truth."
In the second paragraph, Adam Smith is saying that the wealth of a nation is more its cattle, than its money. This is similar to what I claimed, that the wealth is more its product than its money. There is definite support for my claim that Adam Smith was saying that product not money is the wealth of a nation.
I cannot find "land, labor, or capital" in this statement. Perhaps they appear in another paragraph. Please quote me the selection from your edition of "The Wealth of Nations" in which Adam Smith says that the wealth of nations consists of its labor, land, and capital.
In fact, I just did an online search of the entire book, "The Wealth of Nations," and discovered that the word "capital" does not appear there once. Again, I am very much looking forward to your quote.
In the future, I strongly advise you to check your facts before you accuse someone else of "perpetuating ignorance."
Howard
Apologies are in order from me. Even though my online search for the word "capital" produced no hits, that word does appear in the Wealth of Nations, as for example, in this paragraph of Book 4.1.17:
"It would be too ridiculous to go about seriously to prove that wealth does not consist in money, or in gold and silver; but in what money purchases, and is valuable only for purchasing. Money, no doubt, makes always a part of the national capital; but it has already been shown that it generally makes but a small part, and always the most unprofitable part of it."
I also found the paragraph that seems to say that we are both correct (Book IV.1.20):
"It is not always necessary to accumulate gold and silver in order to enable a country to carry on foreign wars, and to maintain fleets and armies in distant countries. Fleets and armies are maintained, not with gold and silver, but with consumable goods. The nation which, from the annual produce of its domestic industry, from the annual revenue arising out of its lands, labour, and consumable stock, has wherewithal to purchase those consumable goods in distant countries, can maintain foreign wars there."
Howard