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Obama Spins Tires


In a speech in New York today on financial regulatory reform, Obama made passing reference to his decision to impose tariffs on imported tires:

A healthy economy in the 21st Century also depends upon our ability to buy and sell goods in markets across the globe. And make no mistake, this administration is committed to pursuing expanded trade and new trade agreements. It is absolutely essential to our economic future. But no trading system will work if we fail to enforce our trade agreements. So when, as happened this weekend, we invoke provisions of existing agreements, we do so not to be provocative or to promote self-defeating protectionism. We do so because enforcing trade agreements is part and parcel of maintaining an open and free trading system.

Obama has decided to spin the tire tariffs as an enforcement action, so let’s take a look at this claim and see if it holds water.

The tire tariffs fall under Section 421 of U.S. trade law, which allows for safeguards for domestic industries against floods of cheap imports from China. These so-called “safeguard” measures are often protectionism in disguise, and they are so easily abused that there is a WTO agreement governing their use:

Safeguard measures are defined as “emergency” actions with respect to increased imports of particular products, where such imports have caused or threaten to cause serious injury to the importing Member’s domestic industry.

The purpose of a safeguard is not to punish unfair trade practices. As the Cato Institute’s Dan Ikenson pointed out in a paper released Friday, “All that is alleged—and all that has to be established—in a 421 petition is that imports from China are increasing in such a manner as to be a cause of market disruption (or threat thereof) to the domestic industry.” In other words, safeguards are protectionist measures — “emergency” protectionist measures, sure, but protectionism all the same.

The WTO defines a “domestic industry” as “the producers as a whole of the like or directly competitive products operating within the territory of a Member, or producers who collectively account for a major proportion of the total domestic production of those products.” But here’s the thing about the tire tariffs: The U.S. tire industry opposed them. Ikenson, again:

The petition in the tires case was filed by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union—the United Steel Workers, for short—on behalf of workers in the U.S. tire industry. However, the USW represents workers accounting for only 47 percent of U.S. tire production capacity, so most workers in the industry are not officially supporting the petition. Furthermore, this is the first 421 case that does not have a domestic producer as the petitioner. Out of the 10 firms determined to comprise the entire domestic tire industry, none supports the union’s petition for import restraints. [EA]

Why did the United Steel Workers file the petition?

During the Bush administration (the first administration under which the law was in effect), there were six Section 421 cases filed by domestic parties, and in four of those the ITC found market disruption and recommended import restrictions. In each of those four cases, President Bush exercised his discretion to deny relief. Thus, trade restrictions have never been imposed under this statute. [...]

Petitioners came to regard the law as a dead letter under President Bush, but have been anxious to test its viability under a new president, who promised last year to decide Section 421 cases “on their merits, not on the basis of an ideological rejection of import relief like that of the current administration.” [EA]

As I wrote in my piece today:

Obama’s decision to impose punitive tariffs on imported tires from China will not just make tires more expensive. It will also signal that the doors are open for any industry to allege “disruption” and receive protection from low-cost Chinese competition. China will likely retaliate with protectionist measures of its own, as Mexico and Brazil have done, only with even greater consequences for U.S. trade. China is our fastest-growing export market. With the exception of a fluky surge of imports in July, our trade deficit with China has been shrinking over the last year. Trade wars are always harmful to consumers, but this one could be especially bad for U.S. businesses that are starting to find a foothold in Chinese markets.

Obama calls the tire tariffs an enforcement action, but dressing rank protectionism as “enforcement” is an old game. If you want to know what enforcement looks like, watch out for what’s coming down the pike from Brazil. The harvest from our trade-distorting farm policy is about to be $300 million in retaliatory tariffs on U.S. products.