Tag: tire tariff

Curbing Free Trade to Save It

In the latest example of “We had to burn the village to save it” logic, Sen. Sherrod Brown (D-OH) argues in a letter in the Washington Post this morning that the way to “support more trade” in the future is to raise barriers to trade today.

Brown criticizes Post columnist George Will for criticizing President Obama for imposing new tariffs on imported tires from China. Like President Obama himself, Brown claims that by invoking the Section 421 safeguard, the president was merely “enforcing” the trade laws that China agreed to but has failed to follow. He scolds advocates of trade for talking about the “rule of law” but failing to enforce it when it comes to trade agreements. Brown concludes, “If America is ever to support more trade, its people need to know that the rules will be enforced. And Mr. Obama did exactly that.”

Nothing in U.S. trade law required President Obama to impose tariffs on imported Chinese tires. As my colleague Dan Ikenson explained in a recent Free Trade Bulletin, Section 421 allows private parties to petition the U.S. government for protection if rising imports from China have caused or just threaten to cause “market disruption” to domestic producers. If the U.S. International Trade Commission recommends tariff relief, the president can decide to impose tariffs, or not.

The law allows the president to refrain from imposing tariffs if he finds they are “not in the national economic interest of the United States or … would cause serious harm to the national security of the United States.”

As I argue at length in my new Cato book Mad about Trade, trade barriers invariably damage our national economic interests and weaken our national security, and the tire tariffs are no exception. If the president had followed the letter and spirit of the law, he would have rejected the tariff.

And since when is causing “market disruption” something to be punished by law? Isn’t that what capitalism and market competition are all about? New competitors and new products are constantly disrupting markets, to the discomfort of entrenched producers but to the great benefit of the general public and the economy as a whole.

Human beings once widely practiced an economic system that minimized market disruption. It was called feudalism.

C/P Mad About Trade

Hey G-20! Here’s How You Curb Protectionism

Last week I recommended reading a new paper published by the Lowy Institute in Australia, which proposes an utterly sensible reform for the G-20, if curbing protectionism is a serious aim.

Using Australia’s own successful experience as an example, the authors recommend other countries adopt “domestic transparency” programs, which would essentially include analysis from an independent, apolitical board or agency that measures the real costs and benefits of proposed trade restrictions.

The findings of these independent reviews would be accessible to the public—and probably published in newspapers and other popular media—in advance of any decision to impose or reject the proposed trade restrictions. The findings wouldn’t legally bind the authorities to take any particular action, but would help chase from the shadows the real costs of protectionism, so that those ultimately making the decision know that the public at large is aware of the costs.

When a politician knows that he/she can benefit politically by imposing import duties, the costs of which are hidden in higher prices paid by consumers, who are unlikely to make the causal connection, there is a profound asymmetry of incentives and disincentives. The politician is much more likely to choose to secure the political benefit of imposing duties since the costs are hidden. But if light is shone on those costs, through domestic transparency initiatives, that asymmetry is reduced or eliminated. Politicians, under these circumstances, can go back to the special interests and say how much they’d like to help out with a tariff, but the costs don’t justify the measure. And the protection-seekers know the politician’s hands are tied because the public is aware of those costs.

Well, Alan Mitchell of the Australian Financial Review on Monday supposed how the presence of a domestic transparency regime would have affected President Obama’s tire tariff decision. It is very instructive:

The case of the Chinese tyres provides a striking example. The action was taken under a section of the US Trade Act popularly known as the “China-specific safeguard” provision. The act allows increased import duties if the imports cause, or even just threaten, material injury to US producers. If material injury is identified, the president must take action against the imports unless he determines that the “provision of such relief is not in the national economic interest.”

 The US International Trade Commission (ITC) publicly advises the president on the issue of material injury, and on the level of trade barriers needed to stop it, but not on the question of the national economic interest.

The president is left to determine that for himself. And the public is aware of nothing but the ITC-endorsed case for protection….

Suppose the ITC had been asked to also publicly advise the President on whether action against Chinese tyres was in the national economic interest. There is no doubt about what its advice would have been. The duties on Chinese tyres will save some jobs among US producers of low-cost tyres, but at the price of propping up uneconomic producers, and at the cost of jobs lost among US tyre retailers and in other sectors of the economy….

Had the ITC advised that action was against the national economic interest, the President would have been in a much stronger position to reject the demand, if he had wanted to. He may not have wanted to, of course….

The US action against Chinese tyres was initiated by a complaint from the unions that are an important part of Obama’s support base. But even if Obama had protected the tyre makers against the advice of the ITC, an important blow still would have been struck against protectionism. The American people would have heard the truth from an unimpeachable source: the protection of inefficient tyre makers is against the US economic interest….

It would have been a small but important step towards educating and changing public opinion. And, without that, multilateral trade reform will never gain the domestic political support it needs to bring down trade barriers in agriculture and services.

This is what could have been had ”domestic transparency” already been embraced in the United States.  See the point in such a reform?

The Tire Tariff and the Invertebrate President: A Fable

Anyone still inclined to minimize the meaning of President Obama’s Chinese tire tariff decision should read George Will’s column today.

It is not only the direct costs of this particular decision, which are numerous and tallied in the article (and in this paper), that should concern us. Will’s bigger concern is the foreshadowing of more protectionism from a president who has proven to have no qualms about looking straight into other people’s eyes and claiming that his administration opposes protectionism, favors free trade, and is working to advance pending trade agreements through Congress, all while remaining “invertebrate as he invariably is when organized labor barks.”

Is this a sign of schizophrenia? No, it’s worse. What we have here is a president who views trade policy as nothing more than a tool to advance his own political standing with groups that are hostile to commerce. Since groups on the left have grown disenchanted that some of the most socialist elements of the health care debate might be left on the cutting room floor, why not try to placate them with anti-business, anti-consumer, anti-globalization protectionism? Will makes the link between tire tariffs and the health care debate in his concluding sentence.

A president who fancies himself economically enlightened and internationalist would treat trade policy as a means to promoting economic growth and sound foreign relations. This president, regrettably, views trade policy as a sacrificial pawn in the service of politics as usual.

Rep. Flake’s Wise Counsel on the Tire Tariff

Earlier today, Congressman Jeff Flake, Arizona Republican, sent a letter to President Obama urging him to reconsider his decision to impose a 35 percent tariff on tires imported from China.

Rep. Flake makes all the right points in his letter, reminding the president that:

Your decision to impose duties on Chinese tires is likely to encourage other domestic industries to file their own petitions for relief under Section 421. The potential for an endless cycle of U.S. restrictions and subsequent retaliation from China is the last thing our economic recovery needs.

I wish there were more members of Congress like Rep. Flake. Our Trade Vote Records feature on our web site offers a searchable data base of all major trade votes going back to the mid-1990s. Our data base confirms that Rep. Flake is the most consistent supporter in all of Congress in opposing both subsidies and barriers to trade.

The president should heed Rep. Flake’s wise letter.