His honeymoon is about to end, thanks to a request by his union friends to “safeguard” American jobs from Chinese tire imports. His looming decision will tell the world if he believes his own rhetoric about the dangers of protectionism in a weak global economy.
The choice is especially important because it is akin to George W. Bush’s decision on steel tariffs in his first year in office. Faced with choosing between a domestic industry and global leadership, Mr. Bush took the advice of his political team and trade adviser Robert Zoellick that imposing steel tariffs would show his trade toughness and help create a new pro-trade consensus in Congress.
Instead, his decision to side with U.S. domestic political interests undermined American trade leadership and Mr. Bush’s personal credibility around the world, making it easier for other countries to resist the Doha Round of tariff reductions. Eight years later, Doha still isn’t finished, and Mr. Zoellick is now at the World Bank lecturing world leaders to avoid the same too-clever-by-half protectionism that he advised on Mr. Bush.
Now Mr. Obama faces his own trade test thanks to the United Steelworkers request to impose tariffs or quotas on imported car tires from China; the union represents workers in tire factories. The U.S. International Trade Commission voted 4-2 to uphold the union’s Section 421 complaint, which is meant to safeguard U.S. producers and workers from an allegedly “disruptive” flood of Chinese imports. The ITC recommended tariffs as high as 55% on Chinese tires, as it often does in such cases. But the ultimate discretion lies with the President, who must decide bymid-September whether to impose the tariff or nix the union’s request.
After his steel blunder, Mr.Bush generally shaped up on trade and resisted these 421 appeals. Six such cases were filed during the Bush Presidency, and the ITC ruled for the U.S.complainants in four of them. To his credit, Mr. Bush ruled against retaliation in all four cases, including the likes of welded steel tube and pipe,waterworks fittings and wire garment hangars.
As Mr. Obama faces his moment of truth on tires, he ought to look at a report issued last week by Rutgers economist Thomas J. Prusa examining how the ITC’s proposed tariffs would ripple through the U.S. economy. Mr. Prusa calculates that each job“saved” by the ITC’s tariffs would come at the cost of at least 12 jobs lost,and possibly more than 25. Most tire-related employment in America consists of the people who distribute and install tires, not people who produce them. By depressing tire sales, a tariff would jeopardize those jobs.
And depress sales the tariff almost certainly would, at least in the first 12 to 18 months. U.S. tire factories have shifted over the years to higher-grade tire manufacturing.Chinese imports come at the lower end of the price spectrum. Mr. Prusa notes that these American producers have little interest in, or capacity for, making substitutes for the Chinese imports. A tariff-induced price rise – amounting to between $300 million and $600 million economy-wide – would mainly hurt low-income American drivers. The tariffs would likely encourage those drivers to delay buying new tires as long as possible.
Mr. Prusa’s research was commissioned by a group called the American Coalition for Free Trade in Tires,which is lobbying against tire tariffs. But his results jibe with an age-old trade truth: Protectionism hurts the protectionist as much as anyone else, or more. Maybe that’s why, unusually for a trade case, American tire makers haven’t joined the Steelworkers in this complaint.
Mr. Obama will be under enormous pressure to do a favor for Big Labor on the tire case, especially with its top priority to rig organizing rules in favor of unions stuck in the Senate. With health care and energy taxes pending on Capitol Hill, the President’s political aides will tell him now is not the time to disappoint the political left.
But he should also think about the risks of sending a protectionist signal when the world economy is barely emerging from recession. The Chinese will be incensed and have plenty of ways to retaliate. By agreeing to this first 421 filing on his term, Mr. Obama would also invite a rush of similar claims in coming months. He’ll be putting himself in political harm’s way for the rest of his term. Mr. Obama has already sent a bad signal on trade by sitting on trade pacts already signed with allies in Colombia, South Korea and Panama, and barely raising a finger to resurrect Doha. A tariff on tires would send his economic agenda rolling further downhill. (Tire Review/Akron)
