Obama Opts for Import Tariffs on Chinese Tires (first major decisions on trade policy)

Source: Washington Post

By Peter Whoriskey and Anne Kornblut

In one of his first major decisions on trade policy, President Obama opted Friday to impose a tariff on tires from China in response to complaints that a surge of imports had undermined the U.S. industry and contributed to the loss of more than 5,000 jobs.

The tariff will amount to 35 percent the first year, 30 percent the second year and 25 percent the third year. A federal trade panel had recommended a levy of 55 percent.

The decision represents a victory for the United Steelworkers union, which had filed the trade complaint under a section of U.S. law intended specifically to protect U.S. manufacturers from Chinese imports. China's government, tire importers and some U.S. tire manufacturers with plants overseas had strenuously objected to the measure.

"The President decided to remedy the clear disruption to the U.S. tire industry based on the facts and the law in this case," the White House said in a statement released Friday night.

Read more: http://www.washingtonpost.com/wp-dyn/content/article/2009/09/11/AR2009091103957.html

The tire companies were objecting to tariffs, from my reading, as they wanted to continue to offshore production. It is interesting that Obama let the interests of U.S. workers prevail.

We might even see a return of manufacturing to the U.S.

who wants to compete was slave wages and foreign government subsidies ???

which are driving down wages and causing job loss.

I curious of how the Repugs are going to spin this.

He needs more praise for what he is doing,and less crap for what he has not.

(myself) There are plenty of popular truck tires - 6, 8, and 10 ply tires - available that are made in the US at decent prices and qualities. For passenger cars, however, the best low-priced tires have been coming from China for three or four years at least. Even big-name Japanese and Korean manufacturers have moved factories to China. While the rapid price increases we had during 2007-2008 have leveled off, it looks like the tariffs will be the next source of higher prices.

I don't mind myself - the domestic passenger car tire industry needed a shot in the arm before folding completely, and in the long term it will be a good thing.

reviews? brand names? Or is this only based on price, as so often is the case?

But a "good tire" is one that you sell a whole lot of, and never get a single one back with a complaint or a defect. Its actually a pretty objective value summing up the various experiences and expectations of a large number of people.

So if a tire is warranted for 50k miles and actually lasts that long, thats very good. If the casings are good enough that the tires stay round, thats good. If the tread design is good enough to hold the road in all types of weather and still ride quiet, thats good. It seems pretty easy to make a decent tire, but there's been plenty of unreliable crap on the market over the years at the price that some decent Chinese tires are going for now.

So I would focus on wet/snow/ice braking distance, latteral acceleration resistance to hydro-planing etc.
Most any tire seems to suit my needs on clear dry pavement. It's when the weather sucks that I find the difference in tires stands out.

one in another country, the company shipping that job pays a $12,000 annual tariff.

That will help pay for retraining, re-education, and unemployment for that worker until he/she regains employment in another job at similar pay scale.

,...sounds good to me. :bounce: Especially if the money is committed to those things you advocate!!! :applause:

"taxing foreign profits owuld make US labor more expensive". (which is bullshit, but he wants to move everything out of the US. Given what slapdash, haphazard, data destroying garbage Windows and other MS products have devolved into, never mind their unethical if not outright illegal misadvertising (Flight Simulator X under DirectX 10, anyone? Amongst scores of others), good frigging riddance.)

reduce the price of the tyres on which the tariff will be based. Big deal.

:banghead:

It's from yesterday's London Financial Times. It was written before Obama had made his decision on the tariff, but it has an interesting take that imposing the tariff is good, long term, for free trade. (Maybe this is just Britain's view of "free trade".)

http://www.ft.com/cms/s/0/cc5a3610-9e3c-11de-b0aa-00144feabdc0.html?nclick_check=1

"The orthodox free-trade view of most pundits holds that if Mr Obama accepts the recommendation he will fail the free-trade test. In fact, the truth is just the opposite. Not to accept the tariff recommendation would be a severe blow to open trade and globalisation as well as to America’s future economic health.

The conventional view is based on the notion that free trade is always a win-win proposition and that our trade with China fits the conditions of the traditional free-trade model. These include the assumptions that the markets are perfectly competitive, that exchange rates are not manipulated, that there are no economies of scale, that there is no cross-border investment or cross-border transfers of technology, and that there are no government subsidies or export requirements. If this were a true picture of our trade in tyres with China, then imposing tariffs would truly be harmfully protectionist and not be justified.

But this is not even close to the reality of our trade with China, which far from embracing orthodox free trade has openly adopted a neo-mercantilist, export-led economic growth strategy. China keeps its renminbi undervalued against the dollar in order indirectly to subsidise its exports. Foreign direct investment in China is often induced by the use of special, targeted tax and financial incentives. Foreign companies investing in China are often required to export the bulk of their production as a condition of being allowed to enter the Chinese market. This is the case with Cooper Tires, which agreed to export 100 per cent of its production in return for being allowed to invest in a Chinese tyre factory. The tyre industry is characterised by enormous economies of scale and imperfectly competitive markets in which a few oligopolistic producers divide the market among themselves. It is Chinese industrial policies and not market forces that are currently determining the trade flows and the location of production and jobs to the detriment of the US tyre industry."

"This kind of trade is not win-win. Rather it is a classic zero-sum game. It is well-known to game theorists that in such situations a tit-for-tat response is the optimal strategy. Unilateral acquiescence to the aggressive initiatives of another player (the orthodox unilateral free-trade response) is a sure way to lose.

This kind of situation was anticipated when China negotiated its entry into the World Trade Organisation along with most-favoured-nation treatment from the US. These deals specifically called for tariffs on China’s exports if they surged in ways that disrupted US industries. Between 2004 and 2008, US imports of Chinese tyres rose 215 per cent while US production fell by nearly 27 per cent and 5,000 US tyre industry jobs were lost. The ITC says China is not engaging in standard free trade and that its actions meet the established criteria and justify imposition of tariffs under the agreed international rules."

The logic of comparative advantage, as far as its benefits for the US economy, does not in fact rest on the assumption that US trading partners are not engaging in various interventionist policies in their own economies. It applies regardless. If China subsidizes its tire exports, then as far as the US economy is concerned, it is as if China could produce tires even more cheaply than it would naturally: the US economy still becomes more efficient by being able to divert resources elsewhere.

In effect, "export-oriented" policies like manipulating exchange rates are a windfall for the country that imports, not the one that exports: we get something for nothing, consumer goods from China in exchange for bits of paper that aren't used. For developing economies, having protected export industries can be quite useful, which is why China does it, but it hardly harms the US economy as a whole: because of transition costs it probably does harm some Americans, but there are better methods for dealing with that than protectionism.

Our economy is 2/3 dependent on consumer spending.

When we don't spend because we don't have jobs, our economy goes into the toilet.

What you are advocating is classic Chicago-school Friedmanite economics that often seems oblivious to the problem of unemployment.

Please cite some respectable articles that give those other ways of competing with a mercantilist exporting economy with extremely low wages and standard of living, and absolutely no regulation of health, safety and the environment, because that's the situation that we're facing.

What does this have to do with trade policy? Unemployment is not going to be magically solved by protectionism; it results from other factors.

Technically it does not matter how much lower production costs are in China; even if it could produce everything at a far lower cost than the US (which it certainly cannot), it could still not produce everything simultaneously.

Your accusation that my views on economics are "Chicago School" is hilariously false. If you read Paul Krugman, you will find him defending free trade, too--and expressing some amazement at how many otherwise intelligent and educated people simply fail to understand comparative advantage.

I understand comparative advantage. You don't understand absolute advantage.

is beside the point.

Indeed, this point is one of the very first stressed in any economics course attempting to teach something about international trade...

What's good for the goose, right?

(I'd rather there be honesty, ethics, and putting out good products and services - like what's told in college and tested on in the goddamn exam... )

I want more of this type of positive action! :bounce: :bounce: :bounce:

he did take a step forward, and I applaud him for that. Nice job, Mr. President.

In many cases we need to impose a penalty of a certain dollar amount on specific products instead of a percentage so that the Chinese government can't manipulate it's currency or wages in an attempt to nullify the effects.

Count on it, retaliation coming. In a trade war, there are two losers and no winners.

This is right up there on the economic intelligence scale with Bush's steel tariff in 2001, and will meet the same outcome.

OF COURSE I want to see union jobs in the US bolstered, but this is not the way to do it. I notice that those who think tariff barricades "work" have a bit of trouble pointing out all the successful examples from history.

hmmmm.

good move, but this is tough maneuvering with a trade deficit.

It will take jobs away from Americans.... always does.

.... has DECIMATED employment in this country, we better fear "protectionism".

You guys crack me up. Pull your head out.

they switched to "free trade". Democrats were the proponents of lower tariffs from the Civil War through FDR, Truman, Kennedy, Johnson and Clinton.

"The tariff represented a complex balance of forces. Railroads, for example, consumed vast quantities of steel. To the extent tariffs raised steel prices, they felt injured. The Republicans became masters of negotiating exceedingly complex arrangements so that inside each of their congressional districts there were more satisfied "winners" than disgruntled "losers.""

"Democratic president Grover Cleveland redefined the issue in 1887, with his stunning attack on the tariff as inherently corrupt, opposed to true republicanism, and inefficient to boot: "When we consider that the theory of our institutions guarantees to every citizen the full enjoyment of all the fruits of his industry and enterprise... it is plain that the exaction of more than is indefensible extortion and a culpable betrayal of American fairness and justice." The election of 1888 was fought primarily over the tariff issue, and Cleveland lost. Republican Congressman William McKinley argued,

"Free foreign trade gives our money, our manufactures, and our markets to other nations to the injury of our labor, our tradespeople, and our farmers. Protection keeps money, markets, and manufactures at home for the benefit of our own people."

"Democrats campaigned energetically against the high McKinley tariff of 1890, and scored sweeping gains that year; they restored Cleveland to the White House in 1892."..."McKinley campaigned heavily in 1896 on the tariff as a positive solution to depression. Promising protection and prosperity to every economic sector, he won a smashing victory. The Republicans rushed through the Dingley tariff in 1897, boosting rates back to the 50 percent level. Democrats responded that the high rates created "trusts" (monopolies) and led to higher consumer prices."

"Woodrow Wilson made a drastic lowering of tariff rates a major priority for his presidency. The 1913 Underwood Tariff cut rates, but the coming of World War I in 1914 radically revised trade patterns. ... When the Republicans regained power after the war they restored the usual high rates. When the Great Depression hit, international trade shrank drastically. The crisis baffled the GOP, and it unwisely tried its magic one last time in the Smoot-Hawley Tariff Act of 1930. This time it backfired, as Canada, Britain, Germany, France and other industrial countries retaliated with their own tariffs and special, bilateral trade deals. American imports and exports both went into a tailspin. Franklin D. Roosevelt and the New Dealers made promises about lowering tariffs on a reciprocal country-by-country basis (which they did)."

"The GOP under Ronald Reagan and George H. W. Bush abandoned the protectionist ideology, and came out against quotas and in favor of the GATT/WTO policy of minimal economic barriers to global trade."

Maybe everything goes full cycle in politics, if you give it enough time. The repubs were the party of abolition, now the most resistant to civil rights for minorities; the Democrats the party of slavery, now a champion (at least, relatively speaking) of civil rights. The repubs were the party of high tariffs and isolation, now low tariffs and unilateralism; the Democrats were the party of low tariffs and engagement, now of peaceful negotiations and global diplomacy and a mixed view on tariffs.

...

:thumbsup: