Topic: Trade and Immigration

Tuesday Afternoon Hypocrisy

An article today in Congress Daily [$] made me laugh out loud. In a “Geez, these people have some nerve” kind of way.

A bunch of politicians have written to Obama, saying that Airbus should be disqualified from the current bidding process for the Air Force refueling tanker contract on the grounds that the World Trade Organization has reportedly (the final ruling is not yet out) ruled EU subsidies to Airbus illegal. Here’s part of their letter:

Buying Airbus tankers would reward European governments with Department of Defense dollars at the same time that the U.S. Trade Representative is trying to punish European governments for flouting international laws… American taxpayers must not be forced to foot the bill for products which benefited from illegal subsidies.

As I wrote to my colleagues when the news came over email, I wonder if those same politicians (authors, by the way, of the auto bailout and cash-for-clunkers) will be as indignant about subsidized companies  if/when Boeing’s subsidies, currently being examined in a counter-challenge at the WTO, are ruled illegal. And how about all those illegal cotton subsidies that the United States doles out? Should taxpayers be footing the bill for storing cotton (scroll down, under “Commodity Certificates”)?

In any case, while I feel sorry for the taxpayers who pay for them, foreign subsidies are a gift to the U.S. consumer.  The bill that American taxpayers are being “forced to foot” is smaller than it otherwise would be because of the corporate welfare flowing to Airbus.  (Note to the libertarian purity police: I’m not advocating for corporate welfare here, just noting the other side of the economic ledger).

Return of the Trade Enforcement Canard

In defending its tire tariff decision, the White House has glommed on to the “logic” that free trade first requires enforcement of trade agreements.  Scott Lincicome exposes the absurdity of that defense here. But with that fallacy serving to undergird what sounds like a pre-justification for more trade cases and more trade restrictions, let me remind the reader that we already have 299 active antidumping and countervailing duty measures in the United States, resticting or prohibiting imports from 43 different countries.  We have all sorts of restrictions on imported textiles, clothing, footwear, food products, agricultural commodities, lumber, steel, pickup trucks, tobacco, and many, many more products, including tires.  But despite all of this enforcement–of rules that are hard to justify, as they penalize most members of society for the benefit of a connected few–we still don’t have free trade in the United States.  In other words, we’ve had the enforcement, where’s the free trade?

And if the holier-than-thou U.S. government is going to focus on enforcement of rules, then by all means do unto others.  The United States remains baldly and defiantly in violation of its NAFTA commitments to open U.S. roads to Mexican trucks by the year 2000.  The United States remains defiantly in protest of WTO Dispute Settlement Body decisions impugning U.S. cotton subsidies, U.S. prohibitions on gambling services offered by providers in Antigua, the antidumping calculation methodology known as “zeroing,” and the Byrd Amendment.  Trade partners in some of these cases are either retaliating or have been authorized to do so.

The argument that more rigid enforcement leads to freer trade will be tested.  But don’t let the inevitable slew of new 421 cases and related restictions in the name of enforcement fool you.  After the restrictions, the retaliation, and the adoption of similar measures in other countries, free trade will be right around the corner.  The next corner.  Keep looking…

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.

President Obama Subsidizes President Obama with Tire Tariff

CHINA-US-CONSUMER-RECALL-FILESWho benefits from 35 percent duties on Chinese-produced tires?

U.S. producers? No, they are the ones who, pursuing profit-maximizing strategies, have consciously shifted production of low-end tires from their U.S. plants to their Chinese plants over the past few years. They will now have to incur the costs of shifting production from China to production facilities in Brazil, Mexico, Indonesia and other developing countries, where it makes economic sense to produce low-end tires.

U.S. workers, then? Nah. Low-end U.S. tire production workers won’t see an increase in U.S. capacity, capacity utilization, hours worked, or wages because, as implied above, production isn’t coming back to the United States. Meanwhile, U.S. workers in tire wholesaling, distribution, and other segment of the supply chain are likely to see a decline in business in the short-run, as higher prices reduce demand for tires. Things may improve once adjustments are made to the new production locations, but that will involve certain adjustment costs and lower profit margins because presumably China is the profit-maximizing production location. Right?  Why else would producers have chosen China?

Does the tariff benefit consumers, then? Come on. Not only will it lead to higher prices for consumers, but it will hit cost-conscious consumers the hardest. And you thought President Obama opposed regressive taxation?

No, the only beneficiary of the tariff is President Obama, who presumably gets some political mileage for his Chicago-style payback of Big Labor. But make no mistake that any benefits to the president will be fleeting, as the direct costs of the tire tariff and the costs of copycat protectionism start to squeeze economic recovery. As the president is flooded with similar requests for protection from other unions and producers, he will have to choose between disappointing those favor-seekers or strangling economic prospects entirely. The tire decision was selfish and shortsighted.

Obama’s Tire Tariff Could Raise Prices by 20 to 30 Percent

President Obama’s decision to impose a 35 percent tariff on imported tires from China was not an act of statesmanship. The White House admitted as much by announcing its decision at 10 p.m. on Friday evening in order to minimize news coverage.

A few union leaders are cheering, but in just about every other way our country is worse off. Among the biggest losers will be low-income American families. The tariffs apply to lower-end tires that sell for $50 or $60 each, compared to $200 for higher-end tires. As The Wall Street Journal reported this morning:

The low end of the market will feel the impact of the tariff most, as U.S. manufacturers, who joined the Chinese in opposing the tariffs, have said it isn’t profitable to produce inexpensive tires in domestic plants.

“I think within the next 60 days you’ll see some pretty significant price increases,” said Jim Mayfield, president of Del-Nat Tire Corp. of Memphis, Tenn., a large importer and distributor of Chinese tires. He estimates prices for “entry-level” tires could increase 20% to 30%.

The anti-poor bias of U.S. tariffs is one of the themes of my new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization.  With his decision Friday, President Obama has revealed himself to be a friend of the status quo.

Obama to Impose Tariff on Chinese Tires

From the quiet shadows of the White House, at around 10 pm on Friday night, came word that President Obama will impose prohibitive duties of 35% on imports of Chinese tires.

Well, we at Cato and elsewhere have warned repeatedly of the dangerous consequences of this outcome (June 18, July 24, August 13, September 9, September 11). Former Cato colleague and coauthor Scott Lincicome has an excellent analysis on the ramifications right here.

The good news is that we now have clarity about where the president stands on trade. The bad news is that his stance reflects his isolationist primary election campaign rhetoric and not the post-election messages of avoiding protectionism and repairing the damage done to America’s international credibility by unilateralist Bush administration policies. Short of armed hostilities or political subversion, no state action is more provocative than banning another’s products from entering your market. I guess this paper was too audaciously hopeful. We’re chastened.

Technically, the Chinese are not legally entitled to retaliate because the United States has legal recourse to restrictions under this so-called “China safeguard” law until 2013. But plenty of American exporting interests have been worried enough to write numerous letters to Obama urging restraint–but to no avail.

Restrictions have never been imposed under this law because in all previous cases – all during the previous administration – President Bush exercised his discretion to reject the recommended duties because of the likely cost of those restrictions on the broader economy. Thus, the Chinese know the decision is a matter of presidential discretion, unlike the antidumping and countervailing duty laws, which are on statutory autopilot and don’t require the president’s attention. Accordingly, the tire restrictions are the edict of the American president, and thus carries more profound meaning for the Chinese.

One of the more thrilling spectacles in all of this, if politicians were capable of humility, would be watching President Obama explain his decision to impose tire duties on China at the G-20 meeting he is hosting in Pittsburgh in 12 days. Recall the president’s pledge (along with the other G-20 leaders) at the last G-20 meeting in London to avoid new protectionist measures.

American credibility on trade is spent. And maybe Obama will find comfort in that fact because he won’t be burdened with that historic responsibility, as he signs off on the slew of new requests for trade restrictions (which are undoubtedly coming soon) under this law from other U.S. industries seeking handouts.

Strap on your armor; the die has been cast.

New Cato Paper Warns of the Consequences of Restrictions on Chinese Tires

Despite the controversy that seems to color all portrayals of U.S. trade with China, the bilateral relationship has held up remarkably well, to the benefit of both countries. But, as I explain in this hot-off-the-presses Free Trade Bulletin, things could go south quickly if President Obama grants the wish of the United Steelworkers union to impose import restrictions on Chinese-produced passenger tires.

Under a special U.S. statute that applies only to China, the president can authorize import restrictions in cases where a domestic industry is found to be suffering from “market disruption” on account of increased imports from China. The U.S. International Trade Commission already rendered that conclusion in the tires case and recommended that the president impose duties of 55 percent. Though duties might benefit the USW, which represents fewer than half of all U.S. tire production workers, the restrictions would be immensely costly to almost every other interest in the tire supply chain, including distributors, wholesalers, retailers, downstream industrial users, and consumers — especially lower income consumers.  Such a decision would amount to a crystal clear U.S. disavowal of its pledge to the G-20 to avoid new invocations of protectionism, just one week ahead of the G-20 summit in Pittsburgh.

The stakes are particularly high in the tires case because the president has the discretion to reject the tariff recommendations altogether, which is exactly what President Bush did on all four occasions when the ITC recommended restrictions under this statute during his administration. Unlike antidumping and countervailing duty restrictions, which run on statutory autopilot without requiring the president’s attention or consent, Section 421 explicitly requires the attention and participation of the U.S. president. The Chinese will view restrictions in this case, then, as a personal directive of President Obama, and the consequences for bilateral relations could be severe.

Please read the paper and circulate liberally.