Flat Tire Tariff
Aug 24, 2009
Tariffs tire me out. I mean that quite literally.
In June, the U.S. International Trade Commission ruled that lower cost Chinese tires are replacing U.S. tires. They encouraged President Obama to embrace economic isolationism – recommending that the administration slap huge tariffs on tire imports from China.
Who stands to suffer? American farmers and American consumers.
On the face of it, this makes no sense. Farmers grow food. We have nothing to do with tire manufacturing.
But trade wars never make any sense--and this administration will spark one if they adopt the ITC’s recommendation. China has threatened to retaliate against tire tariffs by raising its own duties on U.S. exports of soybeans and pork.
The bad result of this tit-for-tat trade war is entirely predictable: Americans will buy fewer Chinese tires and the Chinese will purchase less American food. Instead of trying to reduce conflict in trade, we will have worsened it.
Nobody wins a trade war, except possibly for special-interest groups that can lobby the government for favors. Tire tariffs wouldn’t even be up for discussion without the pleadings of Big Labor. Union bosses want to rig the rules for their own benefit, without regard for how their selfish actions will imperil the economic welfare of other Americans.
Farmers in the United States rely on exports for our livelihood. We need China’s market. The country with the world’s largest population is a major destination for our soybeans and pork. Its soybean imports will exceed 38 million tons in 2009-10, says the U.S. Department of Agriculture. Moreover, the United States shipped 12 million tons of pork--worth almost $20 million--to China in April. For the first time, our exports top those of the European Union.
A tire tariff will shred these gains. The fruits of hard work and innovation will slip away. America’s reputation for leading by example will look like a blown-out tire lying on the side of the highway.
Farmers won’t be the only losers in the United States. Consumers will suffer as well. The ITC recommendation calls for a 55-percent tariff on Chinese tires. This rate supposedly would decline to 45 percent in the second year and 35 percent in the third year. Then it would vanish. At least that’s the theory. I’m willing to bet that the same people who are demanding the tariff today will call for its retention later on.
However it plays out, consumers will enjoy fewer choices from tire retailers. The Chinese happen to specialize in low-end replacement tires, meaning that Americans of limited means will see their cost of driving increase. During a time of economic crisis, this is hardly an outcome our government should seek to produce.
Jobs make be at stake as well. Americans who are involved in tire distribution and sales could bear pay cuts or layoffs.
The Obama administration has a few weeks to make up its mind. The office of the U.S. trade representative will suggest a course of action by September 2. Once the White House receives this suggestion, the president will have 15 days to decide what to do.
Perhaps we have to let this process play out, but the facts are already in. We know for certain that new tire tariffs will hurt farmers, consumers, and retail employees. Their suffering won’t be the result of “unintended consequences”--it will be because the Obama administration has made a conscious decision to disfavor them, almost certainly for political reasons.
This is a gut check for President Obama. As a candidate for the White House, he flirted with protectionism. As President, first came "Buy American" in the stimulus bill and the world was unhappy. Second, he broke a trade agreement on Mexican trucks and they put $1.6 billion of tariffs on U.S. exports into Mexico. Third, we have a slow-down of FTA approval and now, Chinese tires.
President Obama is at a crossroads in his trade policy. His decision on tires will be the bellwether point on future trade policy for this nation. Will he drive the road of more flat-tire protectionism – less trade, higher consumer prices? Or, will he take the path of keeping the trade lanes open, helping the economic recovery to get going?
During the campaign President Obama said, "It would be a good thing to make sure our tires are properly inflated." Now I ask him to make sure HE has the correct tire inflation. There is more than just a rough ride at stake.
Tim Burrack raises corn and soybeans in partnership with his brother on their NE Iowa family farm. Tim is a Board Member of Truth About Trade and Technology www.truthabouttrade.org