Obama Roils Trade Cauldron, Burns U.S. Industry

Monday, September 14, 2009

Daniel J. Ikenson, associate director, Center for Trade Policy Studiesdikenson@cato.org:

Unsurprisingly, several market indicators are down this morning on news that China will protest an Obama administration move to impose a 35 percent tariff on tires imported from that country.

President Obama's calculated decision to impose the duty on Chinese tires might score him points with Big Labor, but it no doubt will carry significant costs for U.S. interests. The consequences for other links in the domestic tire supply chain—distributors, wholesalers, retailers, industrial users like automakers and consumers—could be severe, as the absence of Chinese-made tires raises costs and prices, and curtails demand in the United States for replacement tires.

And at a broader and more permanent level, all U.S. credibility on matters of international trade policy is now spent.

Back in April, President Obama pledged before other world leaders at the G-20 summit in London that his government would avoid new protectionist measures, as the global economy was struggling to emerge from recession. Clearly, the tire decision abrogates that pledge and gives cover to other governments that have been restrained, thus far, from protecting their own domestic industries for political purposes.

And though the Chinese are not technically permitted to retaliate for Obama's tire tariff, respect for international trade rules seems to be receding. U.S. exporters across the agricultural and manufacturing spectrum are worried that they will be targeted—a concern that is validated by China's announcement this weekend of investigations into U.S. auto and poultry exports.

Imposing the tire tariff might appear to benefit the president politically, but that personal benefit will be fleeting and will come at an enormous cost to U.S. interests. In that regard, the tire decision will be considered a watershed in international trade policy.

Upcoming Studies