Forbes – Today, the decision about whether to restrict tires imported from China is in the hands of President Barack Obama.
At issue is whether the Chinese-made, low-end tires sold in the U.S. for use on cars and light trucks are flooding the market in a way that "disrupts" domestic production. The tires are sold more cheaply than premium brands can offer because raw material and labor costs are comparatively small.
On one side of the debate stands a group of American factory workers who sparked the disagreement in April when the United Steelworkers union that represents them formally complained that 5,000 jobs have been lost since 2004 as a result. Opposing them is a coalition of Chinese tire, rubber and metal manufacturers, commerce officials, free trade advocates and U.S. distributors who rely on cheap goods from China to keep costs down.
Big U.S. exporters like Caterpillar are also against the curbs because they fear retaliation from China should the tariffs be imposed. General Motors and Ford have joined the chorus of critics, arguing that price tags on new cars and trucks could inflate by as much as $150.
On Wednesday, steel companies United States Steel Corp. and Nucor rallied behind the workers, sending a letter to Obama urging him to impose the curbs. Siding with these major producers were groups like the National Cotton Council, the American Corn Growers Association and the National Farmers Union, who support the restrictions because low-priced imports from China directly compete with the goods their members produce.
The U.S. mechanism for dealing with such filings is to refer them first to the International Trade Commission, a U.S. agency that advises the president and Congress on such matters. In June the ITC’s divided panel recommended imposing sliding tariffs on tires from China that would start at 55% the first year. The imposition would drop to 45% for the second year out and 35% for the third. Currently, imports like these face a 4% tax.
"If it’s a [special] 55% tariff, it’s impossible to sell tires in the U.S.," Giti Tire Chairman Enki Tan told Forbes last month after he had traveled to Washington to advocate against the tariff.
Giti’s Tan calls the steelworkers’ move and the ITC’s finding of "market disruption" protectionist, anticapitalistic and undemocratic. Not only will consumers face higher prices, he notes, but the tariffs are intended to shield only a small number of union members. Most important, imposing tariffs won’t create jobs because competitors -Bridgestone, Continental AG and Michelin – will substitute by importing tiresfrom Vietnam and other countries where the cost of labor is also low.
The U.S. Trade Representative’s office was required to deliver its research and recommendations to Obama by midnight on Sept. 2. While Obama is not obligated to follow the USTR’s remedy, experts are saying he’ll announce a decision well before his Sept. 17 deadline to avoid conflict later in the month, when he hosts Premier Wen Jiabao and other officials at the G-20 conference in Pittsburgh.
The president faces a conundrum, according to Elliot Feldman, head of the international trade practice at Baker & Hostetler in Washington. During his tenure George W. Bush rejected four cases like this, but Obama, who got critical support from labor in his 2008 campaign, has signaled a break with his predecessor. In July, 10 U.S. senators asked the president to accept the ITC’s tariff recommendation. If Obama needs those senators’ votes later this year, say, to pass his health care reform package, he might be willing to acquiesce to their wishes now.
