WSJ: Mr. Obama’s Trade War — ‘Stock prices will not like this trade war’ — Welcome To The Obama Trade War — As Cheaper Chinese Tires Roll In, Obama Faces an Early Trade Test — Obama Risks Global Trade War With Misguided Tariffs — Brilliant: Obama Starts Trade War With America’s Largest Creditor — Are Chinese tire tariffs repayment of a campaign pledge? — Fox News Video
Is starting a trade war with your 2nd largest trading partner and largest financier a good idea? Hold on to your hats because we’re about to find out:
A full-blown trade row erupted on Sunday night between the US and China after Beijing accused Washington of “rampant protectionism” for imposing heavy duties on imported Chinese tyres and threatened action against imports of US poultry and vehicles.
Didn’t anyone explain the effects of Smoot-Hawley on the depression to President Obama? How foolish to think this president would learn from history when the unions own him lock, stock, and barrel.I was also amused to see the accouncement come out late Friday as if the Chinese wouldn’t notice it during the weekend news cycle.
Wall Street Journal
If President Obama thought he could pander to his domestic political base without any consequences abroad, he needs to think again. Beijing’s response to the tire tariffs Mr. Obama announced late Friday evening is a warning that America’s trading partners won’t take protectionism lying down.
China’s Ministry of Commerce announced Sunday that it will launch antidumping investigations against imported U.S. auto parts and chickens. The move is being interpreted as retaliation for Mr. Obama’s imposition of a 35% tariff on cheap Chinese tires imported into the U.S. (Beijing denies a link.) Apparently Beijing wasn’t mollified by the fact the tariff is less than the 55% domestic lobbies in the U.S. had sought. The Commerce Ministry also put out a strongly worded statement denouncing the tire tariffs and not-so-gently reminding Mr. Obama of the Group of 20 statements he has endorsed about the importance of resisting protectionism amid a world-wide slowdown.
On their own these measures won’t mark dramatic protectionism. Many imports of U.S. poultry already face stiff limits stemming from a pre-existing trade dispute over a U.S. ban on some Chinese chickens. Beijing had already slapped duties on car parts during an earlier trade dispute, too.
Rather, the Chinese government may want to send a signal to discourage Mr. Obama from future protectionism. They have reason to worry. Unlike in normal antidumping cases, Mr. Obama can’t plead that his tire decision was simply made by career bureaucrats following a standard rule book. The trade law he applied, Section 421, gives the President full discretion, and Mr. Obama signaled he’s willing to use his discretion to pay back domestic political supporters like the United Steelworkers union that filed the tire case. And because Mr. Obama’s decision sets a precedent for similar cases, Beijing has to worry it will face more protectionism in short order if it doesn’t nip this trend in the bud now.
This kind of Chinese response was predictable, if the Obama Administration had cared to read the signs. As a political matter, Beijing can’t afford to do nothing. The China Rubber Industry Association, a trade group, puts the potential cost to the Chinese economy of the U.S. tariffs at $1 billion and 100,000 lost Chinese jobs. The Commerce Ministry said yesterday it wants to discuss the issue with the U.S. at the World Trade Organization, but a formal WTO challenge would face an uphill climb. Section 421 was specifically allowed as part of China’s agreement to join the WTO in 2001.
Plus, China has its own protectionist lobbies at home. “Chinese poultry companies have been struggling over the past couple of years amid bird flu and a flood of imports, and the financial crisis is making that worse,” Ma Chuang of the China Animal Agriculture Association, told Bloomberg over the weekend. Tire tariffs from the world’s traditional free-trade leader makes it harder for governments like China’s to stand up to such pressure from their own domestic interests.
That doesn’t make Beijing’s apparent retaliation right, of course. Beijing could best claim the global economic leadership role it craves by resisting tit-for-tat protectionism and instead further reducing its own subsidies, trade protections and limits on foreign investment. That might be wishful thinking, but at a minimum it would be wise to drop these antidumping cases as soon as attention has shifted elsewhere.
The bigger lesson here is for Mr. Obama, though. He appears to have thought he could both appease his far-left antitrade supporters in the U.S. and paper over the resulting disagreements with America’s trading partners. No such luck. Instead he ceded America’s historical leadership on trade when he imposed the tire tariffs. Now China’s weekend moves are offering a first sign of where this will end up if he doesn’t rediscover the virtues of free trade soon.
Market observers fear for prospects of global recovery if protectionist sentiment takes hold
The Globe And Mail: Virginia Galt
Oil prices CL-FT dipped, stock markets fell and investors fled to the safety of the U.S. dollar Monday after China accused the United States of violating World Trade Organization rules by raising tariffs on tires produced in China. With the global economic recovery still fragile, observers expressed alarm about the potential implications of protectionist actions. Some reaction:
This news is not positive for the global capital markets: The Gartman Letter
“Trade protection is always and everywhere detrimental to capital,” Dennis Gartman, author of the widely-read Gartman Letter, wrote Monday. “It cannot be otherwise … Nonetheless, the Obama administration has taken up the case of trade protection with its decision to put this tariff on Chinese imported tires, even though it shall save not a single American job in the process while it raises the ire of Beijing.
“Stock prices will not like this trade war.
“In a world still trying to find its economic footing after the recession of the past nearly two years, any consideration regarding trade sanctions, trade disagreements, tariffs et al is anathema. Even so, President Obama is moving swiftly against the Chinese, and we think this is utter and complete economic nonsense, for in so doing, he is putting global trade in jeopardy …”
“The reality of the situation is that any sand thrown into the global trade machinery is problematic at the very least, and very seriously so at the worst.”
Now is not the time to increase protectionism: Scotiabank
Protectionism abounds, economists Derek Holt and Karen Cordes wrote in Bank of Nova Scotia’s daily capital markets research note.
“Now is not the time to increase trade protectionism as the global economy struggles to recover from one of the worst recessions since the Great Depression,” Mr. Holt and Ms. Cordes wrote.
“However, news on Friday that the U.S. will impose an import duty of 35 per cent on Chinese tires has sparked a retaliation from China, who said that they would restrict U.S. imports of chicken and auto products,” they wrote.
“Not only is protectionism back on the main stage, but China has been on the receiving end of almost 120 protectionist measures in 2008/2009, far above and beyond any other country.”
Global stock markets skittish, commodities down: CMC Markets Canada
“Equity markets started out the week on a skittish note after trade sabre rattling spooked some investors,” Colin Cieszynski, market analyst with CMC Markets Canada, said in his afternoon research note.
“So far, the declines suggest that this may be a tempest in a teapot, but at this point, it may be enough to keep indices in consolidation mode for some time,” he wrote.
“Trading over the next few days may indicate whether investors are changing their attitudes toward a global economic recovery.”
Concerns that a trade war could stall the global recovery also showed up in commodity prices early Monday, Mr. Cieszynski said.
“ Copper HG-FT is generally recognized to be the most global of commodities, the one most sensitive to world demand for resources,” Mr. Ciezynski said. “Its decline toward a test of $2.75 a pound today suggests some concern that a looming trade war could have a negative impact on the nascent global economic recovery.”
The U.S. dollar up as trade worries dampen risk-seeking: Scotiabank
“The U.S. dollar is on firmer footing today, with the commodity currencies underperforming,” Bank of Nova Scotia currency strategist Camilla Sutton said in a research note.
“The escalation of protectionism from the U.S. will concern many, particularly due to its potential impact on the global recovery. As we move closer to the Sept. 24-25th G20 meeting, we could expect discussions to increase,” Ms. Sutton said.
“For today, the impact has been a move to risk aversion.”
Loonie down on protectionist concerns: currency strategists
The Canadian dollar CAD/USD-I opened at 91.79 cents (U.S.), down 0.92 of a cent from Friday. By mid-afternoon, the currency had recovered some ground and was down 0.58 of a cent to 92.13.
“The escalation of trade tensions between the U.S. and China is concerning to USDCAD traders because of its potential impact on the global recovery and due to fears of the effect of increasing U.S. protectionism on Canadian exports to the U.S.,” Ms. Sutton said.
“In addition, there seems to be some ongoing focus on the Canadian political landscape [with the prospect of a federal election looming], however, we suspect this is minor and temporary,” Ms. Sutton said.
United Liberty: Doug Mataconis
Sept. 14 (Bloomberg) — China announced a probe into the alleged dumping of American auto and chicken products, two days after U.S. President Barack Obama imposed tariffs on imports of tires from the Asian nation.
Chinese industries have complained that they’re being hurt by “unfair trade practices,” the nation’s Ministry of Commerce said on its Web site yesterday. The Beijing-based ministry is also looking into subsidies for the products, it said. It didn’t specify the imports’ value.
Irwin Seltzer, meanwhile, thinks that Obama’s decision is a sign of bad things to come:
Obama’s decision on tires makes it clear that he has no intention of supporting efforts to revive the almost 8-year-old Doha trade-opening negotiations. Some 36 nations met in New Delhi earlier this month and professed interest in completing a deal by the end of next year. Not likely: the recession has made jobs, jobs, jobs politicians’ central concern, and few are prepared to take the flak that will surely arise if they open their markets, and expose even a few domestic companies or farmers to job-destroying competition.
The talks collapsed in July of 2008 precisely for that reason. Obama has been sitting on proposals for bilateral free trade agreements with Colombia and Korea, among others, and sees no reason to antagonize the strong, protectionist wing of his party, already unhappy with his failure — so far – to throw his weight behind a bill that would end the secret ballot in union-recognition elections, and require compulsory arbitration when union-management negotiations break down.
He will, however, have a hurdle or two to cross as he races to scupper America’s post-World War II trade policy. The World Trade Organization has ruled that Brazil is entitled to $295 million now and $150 million annually because the U.S. government has failed to eliminate subsidies to its 25,000 cotton farmers.
That pittance won’t disturb a president who deals in billions and trillions, but the WTO also ruled that Brazil’s generic drug industry can retaliate against U.S. pharmaceutical manufacturers of drugs by copying drugs still under patent protection. That would please the left wing of the president’s party, convinced that drug prices in America are set at extortionate levels, but would more than a little upset the drug companies that have so far backed the president’s health-care reforms. And reduce the flow of new drugs that have helped to keep health-care costs from rising even faster than they have.
All of these battles are merely skirmishes in a much broader battle. Almost every country is seeking to export its way out of the recession. Germany is relying on its exporters to create jobs; China is depending on its export machine to keep its economy growing fast enough to create millions of jobs and avoid social unrest; Japan’s new government, no longer reflexively pro-American, also needs exports to end a decade of stagnation.
But Obama, in charge of the world’s consumer-of-last-resort, has decided to eschew that role in the future. Indeed, he has had his Trade Representative, Ron Kirk, announce that America will no longer allow its trade partners to “run roughshod over us.” Some of the president’s reasons for pushing exports and tightening up on imports are purely political — he needs the trade unions and his party’s left. Others are more fundamental — he has to cut the U.S. trade deficit lest the value of the dollar continue its descent and add to the inflationary pressures created by his enormous deficits.
Meanwhile, he has sent a signal to the Sino-Franco-Russian et al. anti-dollar bloc that for all his talk about international cooperation to fight the recession, he is in the end willing to go it alone if domestic politics so dictate. That will increase their resolve to find some replacement for the dollar as the world’s reserve currency. Obama might indeed turn out to be the “transformative” president he intends to be, but not quite in the way he intends.
Meanwhile, in addition to erecting trade barriers of their own, the Chinese have also said that they may appeal the tire tariff to the World Trade Organization:
China “strongly opposes” President Obama’s decision to impose tariffs on tire imports from the country and may refer the case to the World Trade Organization, its Ministry of Commerce said.
The United States had violated rules of the WTO and the tariff is a breach of the commitments made by the nation at Group of 20 summits, the ministry said in a statement posted on its Web site, citing spokesman Yao Jian.
The move will harm both countries’ interests and will produce a chain reaction of trade protectionism, slowing world economic recovery, the ministry said
As I’ve said more than once recently, there’s really something screwed up with the world when the leaders of China have a better understanding of basic free market principles than the President of the United States.
ALBANY, Ga. — At the vast Cooper Tire plant here, workers heard for years about their rivals in Chinese factories.
In meetings, managers urged employees to run production lines faster and more efficiently to help the company keep up. Overseas laborers were toiling for as little as 20 cents an hour, they were told, and working harder.
Even more ominously, while browsing the aisles of Kmart and Wal-Mart, Cooper employees could see that, sure enough, the Chinese tires were cheapest.
“They would have these meetings and say we’re up against the Chinese,” said Larry Burkes, 29, who worked at the plant, which rises on the city’s outskirts just beyond a mobile-home park. “We’d hear it all the time: ‘They work for less.’ There was pressure.”
Now the plant that employed 2,100 people in this small south Georgia city is being shut down, and the troubles afflicting the U.S. tire industry are at the core of what many consider to be one of President Obama’s first major decisions on trade policy.
By Sept. 17, Obama must decide whether to slap a 55 percent tariff on tires imported from China, as recommended by a federal trade panel, or leave the matter alone, as a phalanx of lobbyists representing manufacturers in China and U.S. companies that import from them are urging.
From 2004 to last year, the number of Chinese tires imported to the United States more than tripled, and their share of the U.S. market rose from 5 percent to 17 percent. Over the same period, the share of the U.S. market served by U.S. factories declined by a similar amount. More than 5,000 U.S. jobs were lost.
Opponents of the tariff say the U.S. industry’s shrinkage is unrelated to the surge in Chinese imports. The U.S. manufacturers, they say, have strategically moved into pricier, more profitable tires, shifting production of cheaper tires overseas.
“We hope the U.S. government will refrain from taking action, for the long-term healthy and stable development of U.S.-Chinese relations,” a Chinese deputy commerce minister, Fu Ziying, said at a news conference last month. “The case is neither supported by facts nor does it have valid legal grounds.”
The ballooning trade imbalance with China has provoked complaints that the relationship is crushing U.S. manufacturers. Critics of the relationship say China manipulates its currency and employs other protectionist policies that make it difficult for U.S. factories to compete.
Congress passed legislation in 2000 that allows the United States to impose tariffs and other protections if a surge in Chinese imports damages a U.S. industry. China agreed to the provision while negotiating to join the World Trade Organization.
The general “safeguard” provisions of the law have never been invoked, however. The Bush administration was asked four times to impose measures to protect a U.S. industry, but it declined each time.
The proposed tire tariff represents the first such case presented to Obama, and his action will be closely watched and weighed against his campaign promises to “crack down on China” and “work to ensure that China is no longer given a free pass to undermine U.S. workers,” as his Web site put it.
There are other political currents at work, as well.
The United Steelworkers union, which represents many of the nation’s tire workers and brought the complaint, helped Obama win the presidency. The other side, meanwhile, boasts the aid of several former U.S. trade officials, who are representing the Chinese manufacturers and U.S. companies that import from China.
For the former plant employees here, however, the politics are a distant concern. They were not members of the union. They’re trying to find jobs.
Many of them made $18 to $21 an hour, and in the Albany area, it’s difficult to match that wage — even in ordinary times. These days, unemployment is just short of 11 percent.
Larry Cannon, 37 and the father of three children, ages 13, 10 and 4, used to specialize in molds at the plant. Now, as he starts classes to become a biomedical technician, his wife has taken a job in the photo department at Wal-Mart.
Joseph Roberts, previously a shift manager in curing and finishing, said he’s just beginning to feel the pinch of unemployment. At 49, he said, he feels like “I’m starting all over again.”
Byron Botdorf, 59, is taking up welding at Albany Technical College. He’ll be 61 when he’s retrained for a new job.
“My son got into welding — it’s a good trade,” he said. “But here’s the thing with this economy: Everything nowadays is made in China. Go to Wal-Mart. It’s hard to find anything down there that isn’t made in China. The last pair of boots I bought were made in China. I don’t like buying China stuff — but you kind of have to.”
Each of the 10 former Cooper employees interviewed expressed support for a tariff, though some wondered whether blocking Chinese tires might simply mean that the cheap imports would just arrive from other countries.
Mark Burns, 43, who used to drive a forklift at the plant, has been through layoffs before. Fifteen years ago, he was briefly laid off from the local cotton mill, Flint River Textiles. That company eventually shut down, citing the cost pressures of Asian imports. He then took the job at Cooper Tire. Laid off again, he now plans to become a welder.
“Welding is not something they could import very easily,” he said.
While workers lay some of the blame for the plant closure on Chinese tires, tire companies in the United States that import tires, as well as the manufacturers in China that supply them, argue that on the contrary, those imports make the U.S. companies more efficient and more profitable.
They argue that the ability to import the cheapest tires from overseas enables U.S. manufacturers to focus on producing more expensive tires, which have a larger profit margin. Most major U.S. tire manufacturers have tire plants in China or import from there.
“When you are one of the guys who loses a job in the process, I know that’s cold comfort — but it’s also a reality,” said Marguerite Trossevin, who represents a coalition of U.S. tire companies that import Chinese tires to sell under their brands.
Even if the tariff goes into effect and essentially bans Chinese tires from the United States, tariff opponents say, companies are unlikely to expand U.S. production because the competition from the world’s low-cost countries is too strong.
“You don’t keep jobs here by forcing companies into unprofitable lines of business,” Trossevin said.
So far, the federal government has looked askance at the claim that the surge of Chinese tire imports is unrelated to the shrinkage in the U.S. industry, however.
In a 4 to 2 decision released in July, the U.S. International Trade Commission, a quasi-judicial federal authority, ruled that the imports had damaged the domestic industry. They recommended the tariff that Obama is now considering.
In announcing the closure of the plant here, Cooper officials cited “intense pressure in recent years from increased lower-priced imports.”
Today, 70 percent of the tires that Cooper sells in the United States are also manufactured in this country, a proportion that is larger than for any other major U.S. tire company, a spokesman said.
Yet Cooper’s corporate officials oppose the proposed tariff.
It has built one plant and bought another in China in recent years, sometimes sending Albany workers there to help train the Chinese workforce. At one of the plants, the Chinese government stipulated that all of the production must be exported, a requirement that insulates Chinese manufacturers from competition.
The proposed tariff would apply to Cooper Tire products manufactured in China and brought to the United States.
It “could have significant negative impacts causing considerable market disruption” and “negative impacts on U.S. consumers,” the company said in a statement. “Cooper Tire & Rubber Company believes in free and fair trade which allows markets to grow and be successful.”
Botdorf was surprised to learn that Cooper opposed the tariff but then said the company seems to have shifted its concern away from employees in order to satisfy shareholders.
“Leaving things as they stand might be the right thing for American companies,” he said. “But something has to be done for the workers, too. Otherwise we’ll become a nation of retailers.”
MISH’S Global Economic Trend Analysis
On Wednesday, in a dispute over the price of steel pipe, the US Fires Opening Salvo In Trade Wars With China. Late Friday evening, trade wars heated up again as Obama Fired the US’ Second Shot In Trade War With China.
In what is widely considered a test case of the president’s union support, Obama slaps duties on tire imports from China.
U.S. President Barack Obama slapped steep additional duties on tire imports from China on Friday in a move that pleased domestic labor groups but drew a strong rebuke from Beijing.
The United Steelworkers union, which represents workers at many U.S. tire production plants, filed a petition earlier this year asking for the protection. It said a tripling of tire imports from China to about 46 million in 2008 from about 15 million in 2004 had cost more than 5,000 U.S. tire worker jobs.
An additional 35 percent duty will be placed for a year on Chinese-made passenger vehicle and light truck tires, the White House said in a statement.
“For far too long, workers across this country have been victimized by bad trade policies and government inaction. Today, President Obama made clear that he will enforce America’s trade laws and stand with American workers,” United Steelworkers President Leo Gerard said.
The ITC had recommended starting with a 55 percent tariff that would fall to 45 percent in year two and 35 percent in year three. The steelworkers asked initially for a quota of 21 million that would grow by 5 percent each year.
Analysts expect Friday’s action to encourage other labor groups or domestic manufacturers to seek relief under Section 421, which does not require petitioners to prove unfair trade practices are responsible for a surge in imports.
No American tire manufacturer supported the case and one, Cooper Tire, publicly opposed it.
“We are certainly disheartened that the president bowed to the union and disregarded the interests of thousands of other American workers and consumers,” said Marguerite Trossevin, counsel to the American Coalition for Free Trade in Tires…
Tire Tariffs Seen And Unseen
First steel, now tires. Let’s see how China responds. China might put import duties on meat hurting US farmers, or perhaps they decide to buy planes from Airbus instead of Boeing. Perhaps they simply buy fewer planes from Boeing.
[Note: I wrote the above on Saturday, we now have an answer from China, discussed below]
What about dock worker jobs unloading tires from China? What about millions of consumers who benefit from lower prices?
Cooper Tire has a plant in Georgia but it also imports tires from China. Will this stop the imports? The answer is no. However, it will temporarily add supply constraints and inefficiencies, perhaps forcing prices up temporarily. To get around the tariffs, production will shift to other countries instead.
When supply shifts to other producers, will that mean more tariffs against other countries? If so, are we supposed to think those countries will not retaliate?
For now let’s assume 5000 jobs would be “saved” by this measure. Let’s total up the gains and losses from the Tariffs.
Gains From Tire Tariffs
- 5,000 Jobs
Losses From Tire Tariffs
- China reduces orders for planes and/or imposes agricultural tariffs in response. China will retaliate somehow those are possible examples how.
- Costs go up as production shifts from China to US or elsewhere.
- Millions of US consumers temporarily have to pay unnecessarily high prices for tires as long as normal supply chains disrupted.
- Fewer dock workers are needed as both imports from China and exports to China drop
Let’s revisit those gains. Does anyone really think 5,000 jobs are coming back to the US as a result of this action? Better yet, did we really lose 5,000 jobs in the first place as a result of tire imports from China?
Let’s explore those questions with a look at tire production.
Tire Production Before And After Tariffs
The Washington Post article has a graph of tire production. I duplicated the chart and doubled it up showing what I believe to be the before and after effects of the tariff. Annotations in blue are mine.
Think anything was gained by Tariffs? I don’t.
Probe ‘not revenge’ for hefty tire tariff
It was Saturday when I wrote “First steel, now tires. Let’s see how China responds. China might put import duties on meat hurting US farmers, or perhaps they decide to buy planes from Airbus instead of Boeing. Perhaps they simply buy fewer planes from Boeing“
By Sunday evening, China had already responded…
Bloomberg: By Mark Drajem
President Barack Obama said his decision to impose tariffs on Chinese tires wasn’t intended to be “provocative,” as China’s response sparked concern about the risk of a trade war.
China called the move an “abuse,” and filed a complaint with the World Trade Organization today. China also said it will probe whether U.S. chicken and auto products are being dumped at below-market prices or receive unfair government subsidies.
“This administration is committed to pursuing expanded trade and new trade agreements,” Obama said in a speech at Federal Hall in New York City today. “But no trading system will work if we fail to enforce our trade agreements.”
Obama said Sept. 11 that he will impose duties of 35 percent on $1.8 billion of automobile tires from China, acting on a petition by the United Steelworkers union.
The “risk is that it just spirals” into a trade war, David Spooner, a former Commerce Department official and a lawyer at Squire, Sanders & Dempsey LLP in Washington, said in an interview today. Spooner represented China’s rubber industry in the case.
White House spokesman Robert Gibbs told reporters today that “a dispute like this” won’t cause the U.S. relationship with China to “get off track.”
Obama said in his speech that imposing the tariffs wasn’t meant to be “provocative or to promote self-defeating protectionism.”
The case brought by the steelworkers union was the largest so-called safeguard petition filed to protect U.S. producers from increasing imports from China. Union leaders and Democratic lawmakers said the decision demonstrates Obama’s commitment to protecting U.S. workers and jobs.
Retailers that rely on imports are “disappointed in the president’s decision to bow to political pressure,” Stephanie Lester, vice president of the Retail Industry Leaders Association, which represents companies such as Wal-Mart Stores Inc. and Target Corp., said in a statement.
The retailers hope administration officials “will be more judicious in their responses to any future safeguard petitions,” she said.
Obama’s decision on tires may encourage U.S. producers of apparel, steel or other goods to file similar safeguard complaints against imports from China, and spur China to retaliate against U.S. companies trying to do business there, said Robert Kapp, a Port Townsend, Washington-based business consultant specializing in China.
‘Biting Their Nails’
“There are 10 to 50 companies on the U.S. side biting their nails to the bone, hoping they are not caught up in this,” Kapp said.
As long as China continues to subsidize its manufacturers and channel government funds into export-oriented businesses, trade friction with the U.S. will remain, said Jeremie Waterman, senior director for China at the U.S. Chamber of Commerce.
The safeguard complaints “are symptoms of broader problems in the U.S.-China relationship,” he said in an interview today. Obama’s decision “is not likely to save a single job, but it’s a legal and legitimate action.”
The U.S. and China will try to make sure the frictions that erupted over tires don’t disrupt a commercial relationship that totaled $409 billion last year, Kapp said. China, the second- largest U.S. trading partner after Canada, is also the largest holder of U.S. debt with $776 billion.
“The Chinese will be angry,” said Elliot Feldman, a partner with Baker Hostetler LLP in Washington, who writes a blog on China trade. “But there is a limit to their anger.”
Feldman predicted China won’t prevail in its complaint over the tire tariffs because Chinese officials accepted such “safeguard cases” when it joined the WTO.
“The U.S. is confident that our action is fully WTO- consistent,” Carol Guthrie, a spokeswoman for the U.S. Trade Representative’s office, said in an interview today. The safeguards were part of “the deal China agreed to.”
In safeguard cases, companies need to show only that imports are surging and not that the products benefit from subsidies or are being dumped at a discount.
Some of the largest U.S. tire companies didn’t join in the union’s petition for relief from Chinese tire imports. Goodyear Tire & Rubber Co., the largest U.S. tiremaker, stayed neutral. Cooper Tire & Rubber Co., the second-largest U.S. tiremaker, opposed the relief. The company has a plant in China.
Goodyear gained 51 cents, or 3 percent, to $17.78 at 4 p.m. in New York Stock Exchange composite trading. Cooper rose $1.03, or 7 percent, to $15.89.
“We see positive implications for U.S. pricing,” Deutsche Bank Group said in a report today. “Tightening supplies of Chinese tires could exacerbate this phenomenon in the U.S.”
Say Anything Blog
What’s the worst that could happen? Aside from more expensive products for Americans, fewer exports for American businesses and China refusing to buy up any more of the debt Obama and his fellow Democrats are creating, that is.
WASHINGTON — President Barack Obama on Friday slapped punitive tariffs on all car and light truck tires entering the United States from China in a decision that could anger the strategically important Asian powerhouse but placate union supporters important to his health care push at home.
Obama had until Sept. 17 — next week — to accept, reject or modify a U.S. International Trade Commission ruling that a rising tide of Chinese tires into the U.S. hurts American producers. A powerful union, United Steelworkers, blames the increase for the loss of thousands of American jobs.
I’m sure the Steelworkers are happy about this, but those of us who might be looking to get a new set of tires had better hurry and get them before prices go up.
And, really, is this the sort of thing America’s economy can afford right now? Most of us own cars. All of those cars need tires. Tires are one of those inelastic commodities. Sure, we can all try to stretch a few more miles out of old rubber, but eventually they wear out. Go flat. And now replacements are going to be more expensive because Obama decided to please his union buddies.
Plus, trade wars rarely impact just one type of product or even just one industry. Remember that one big reason why you can afford to buy as much junk as you do is because so much of it is made in places like China. Especially China, and if we kick of a trade war with that country a lot of prices are going to go up. Meaning your life is going to get more expensive. Because, again, Obama decided to please his union buddies.
Add in the fact that China will no doubt retaliate by slapping tariffs on American goods, thus costing Americans jobs, and that starting a trade war with the biggest creditor of our huge and currently exploding national debt and we’re looking at a really, really stupid decision.
But, again, the unions are happy.
Who’s driving President Obama’s trade policy?
Weekly Standard: by Neena Shenai
President Obama may think of himself as a Robin Hood of sorts–taking from the rich, giving to the poor. But what happens when a privileged constituency of the Obama administration–organized labor–forces President Obama to choose some working Americans’ jobs over others and break campaign promises to not hike taxes on the middle class? Will the president stand up to the unions?
Candidate Obama promised to enforce the U.S. trade laws–explicitly including the so-called China safeguard now before him brought by the United Steel Workers (USW) concerning imports of Chinese tires for cars and light trucks. The China safeguard, similar to the global safeguard and a condition to China’s 2001 World Trade Organization accession, allows the United States to legally place restrictions on market-disruptive Chinese imports to provide the injured domestic industry an opportunity to return to profitability.
Siding with the USW in this case, however, will not assist the U.S. tire industry or give USW workers their jobs back. Rather, American consumers and downstream U.S. tire businesses will suffer, and trade relations with China will be needlessly damaged. As valuable as a safeguard’s legal “escape hatch” is in warranted cases, this case represents an egregious subversion.
Critics of the Chinese tires safeguard say that it will amount to a $600-700 million tax on U.S. consumers and thousands of lost jobs. If President Obama decides to go forward with the up-front draconian 55 percent tariff, he will essentially have broken his campaign promise to not raise taxes on middle class Americans. The cost of generally cheaper Chinese tires as well as higher-priced U.S. and other foreign made equivalents will rise.
As 80 percent of consumer tires sold in the United States are replacement tires, working Americans will either have to shell out the extra money or put off replacing their tires, creating safety hazards on the road. Moreover, some 25,000 Americans employed by tire distributors, wholesalers, and retailers will likely lose their jobs because of the resulting drop in demand for tires. That’s up to 25 jobs lost for every potential union job saved. In all likelihood, all 26 jobs will be gone.
The USW brought this safeguard action blaming Chinese tire imports for 7,000 layoffs at tire plants countrywide. The USW could legally petition for this action under the trade laws, but U.S. producers, which the USW is claiming are injured, are not supporting the case and have been conspicuously absent from the entire administrative proceeding. In fact, U.S. tire producers have indicated that they would neither re-open the shuttered U.S. factories nor re-hire laid-off USW workers even if the safeguard were enacted.
Despite suffering from declines in demand attributable to devastating economic conditions and the near demise of the U.S. auto industry, U.S. tire producers have avoided involvement in this case for a simple reason: they made strategic business decisions to focus on manufacturing premium, name-brand tires in the United States, while moving most production of small size and lower-value tires to lower cost centers like China. Notably, 17.4 percent of imports from China and 72.3 percent of all other U.S. tire imports are made. by U.S. producers abroad. If the safeguard is enacted, U.S. and other foreign producers will simply ramp up low-cost production abroad to pick up the slack. For the USW to claim that the safeguard will allow U.S. workers to return to previously abandoned production lines is simply fanciful.
The president is required to determine whether this safeguard action is in this country’s national interest, not simply of an interest group which is merely seeking to set a precedent for future protectionist actions. Instead of pandering to the USW, President Obama should take the most legally-justifiable and economically-effective action here: grant Trade Adjustment Assistance (TAA) for the displaced tire workers so that they can re-tool their skill sets and re-enter the workforce as many other American workers have done.
Taking the TAA route and avoiding the looming domestic fallout will have the added benefit of averting the souring of U.S.-China economic relations. Chinese tire imports are dwarfed by imports from other countries, yet tires from the likes of Brazil and India are not on the chopping block. Amidst the rising tide of protectionism in Washington, commitments to enhance U.S.-China cooperation through the Strategic & Economic Dialogue will be exposed as mere rhetoric. There are a plethora of legal actions we can take against China at the WTO to reduce market barriers–let’s not waste our time sparking trade wars on actions that serve no purpose.
Just one week after he is required to make his decision in this China safeguard case (although it is rumored he may do so before), President Obama will meet with world leaders, including Chinese President Hu Jintao, at the G-20 summit in Pittsburgh. Perhaps the president will find a compromise–pacifying the USW but choosing a less market-distortionary remedy such as a quota or the like. Whatever happens, one need only recall that Pittsburgh is also home to the USW and promises are promises. But, whose promise will President Obama choose to keep–to the USW or the American people? The only correct answer is obvious.
Purchasing Biz Connect
It looks like the Obama administration is using tariffs on motor vehicle tires to repay the United Steelworkers union for election-year support. President Obama campaigned for the presidency using tough trade rhetoric and appealing to union workers. Last Friday night, the White House announced it will put steep import duties on low-end Chinese-made passenger and light truck tires. China has called the tariffs “a serious act of trade protectionism” and analysts see an imminent appeal to the World Trade Organization.
U.S. Trade Representative Ron Kirk says the tariffs–35% in the first year, which would decline to 30% in the second year and 25% in the third–are based on a U.S. International Trade Commission determination that a surge of Chinese tire exports to the U.S. rocked the domestic tire industry and displaced thousands of jobs. However, the union asked for the tariffs; not one tire company asked for them. According to the Wall Street Journal, that’s tacit recognition from the tiremakers that it has long ago abandoned the U.S. market for the low-end tires.
Interestingly, the White House decision is based on pre-recession business conditions. Between 2004 and 2008, China’s tire production capacity surged by 152%. At 235.2 million tires, China’s production capacity in 2008 was more than three times greater than its shipments to its home market. U.S. imports of tires from 2004 to 2008 jumped from 14.6 million to 46 million. China’s share of the U.S. tire market surged 255% in that time, to 16.7% from 4.7%. Meanwhile, four U.S. tire plants closed in 2006 and 2007. There were 5,168 fewer workers in the U.S. tire industry in 2008 than there were in 2004. Whether trhat’s because of Chinese tire imports is debatable–since several U.S. firms have high-quality tire plants operating in China these days.
Also, David Spooner, an attorney at Squire, Sanders & Dempsey, counsel to the Chinese tire industry, notes that “imports of tires from China have been falling rapidly for several months. According to the latest official data, imports of tires are down almost 9% this year.”
Update: On Monday, Chinese state media denounced Obama’s decision and said the upcoming G20 summit of the world’s biggest nations in Pittsburgh will be contentious. “Obama has undoubtedly chosen a dangerous gambit,” says the International Business Daily, a Chinese-language daily issued by China’s Ministry of Commerce. “The Chinese business world that has been wronged by this will not sit still on this, and even tougher contention between China and the United States may be looming.”
While the intensified sparring between the world’s biggest economies could trigger a bout of nerves in financial markets, Jia Qingguo, expert on China-U.S. relations at Peking University tells Reuters it is unlikely to spiral into a full-scale trade war. He says the countries have too much at stake, and need each other too much when it comes to problems like North Korea, to let the dispute spin out of control. “Both sides will work hard to limit the fallout from this to within certain parameters and not let it affect the broader state of relations and cooperation,” he adds
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