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
