Posted by spaul on 09/18/2009
President Obama deserves credit for making a tough call on trade. On September 11, he decided to impose tariffs on consumer tires from China for the next three years, resisting the pleas of most opinion elites across the nation and one of the principal financiers of our massive public
debt: China's government.
Though many industries have been battered by imports from China, the safeguard mechanism permitted under rules China agreed to upon entering the World Trade Organization eight years ago has never been invoked before this month. While the merits of the trade case filed by the United Steelworkers (USW) union seeking relief from a massive surge of imported Chinese consumer tires were quite clear, an absurd mythology has encompassed it.
Even though the International Trade Commission (ITC) recommended tariffs after hearing copious evidence from importers and the Chinese tire industry as well as from the USW (which represent tire workers), opponents of the tariffs still insist that the decision will be counterproductive, raising prices while creating jobs in other importing nations. That is complete nonsense. No other exporter can replace the market share of consumer tires that China currently holds. Goodyear has indicated that it will invest $600 million in its American tire manufacturing facilities, making it highly likely that the tariffs will allow for some capital investments in the domestic tire industry and put tire workers back on the job. Prices for tires--if they rise at all--will increase by $3 per tire according to the ITC, while the economic benefits to the nation, in the form of jobs and wages saved, taxes paid, and corporate profits--will more than double that.
Some critics of the tariffs have pointed to potential retaliation by China against U.S.-produced chicken feet and auto parts. This is merely bluster by Beijing, which is not normally held to account on trade issues. For eight years, China has not faced serious sanctions for a beggar-thy-neighbor, mercantilist trade policy. But remember this: China depends on access to the U.S. market for its own employment and growth, and will not ultimately risk its livelihood to make a point.
Others believe that the outcome of this case will lead to the filing of even more import surge cases against China by industries such as textiles or steel. The sad fact is that scores of American industries have seen an import surge from China. While a few more cases may be in the offing, a far more likely outcome of the tire case is a serious bilateral negotiation between the U.S. and China to address a number of trade irritants, such as massive industrial subsidies, lack of market access, intellectual property theft, persistent dumping, and an exchange rate that most economists believe is dramatically undervalued and misaligned.
Does anyone still believe it is a good thing to outsource not only our manufacturing but also our debt financing to China? The tire decision alone will not change this equation, but it could chart a better course for America.
Revitalizing manufacturing, reducing our trade imbalances and bringing down our public debt are interconnected. The tire trade decision alone will not accomplish these goals, but it may lead lawmakers to embrace a new strategy to grow manufacturing in this nation. Trade enforcement as articulated by President Obama is an essential component of that strategy, but it is only part of the equation. We need a results-oriented trade policy, one that recognizes the importance of opening new markets as well as enforcing the rules. It is refreshing to see a pragmatic national leader on trade after so many years of benign neglect.
This blog is cross-posted on The Huffington Post.