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Barack Obama Does Something Really Stupid: Tire Tariffs

Why oh why can't we have better Democratic presidents?

Barack Obama does something stupid. So does Harold Meyerson, who writes an op-ed on the tire tariff that clouds the issues.


A Trade Test for Obama: ometime before Sept. 17, President Obama has to make a decision that will tell us a lot about his commitment to American manufacturing. By that date, Obama has to accept, reject or modify a recommendation from the International Trade Commission (ITC) to impose tariffs on the Chinese-made tires that are swamping the U.S. market. The importance of this battle goes well beyond its impact on the tire industry. Much of Americans' skepticism toward free trade comes from their empirically verifiable sense that their government has been reluctant to enforce its own trade laws -- an issue that candidate Obama tackled head-on last year by his repeated pledges to enforce those laws.

Between 2004 and 2008, tire imports from China increased 215 percent, while imports from other nations decreased 5 percent and U.S. tire production declined 27 percent...

Harold: you need to provide people with the right numbers--which are that Chinese tires rose from 6 to 20 percent of U.S. purchases. You don't.

Meyerson goes on:

[T]he ITC's staff analysis forecast an increase of only $3.50 per tire -- not nothing, to be sure, but a cost that has to be measured against the possibility of tens of thousands of job losses in U.S. tire factories (where more than 5,000 jobs already have been lost because of Chinese imports)...

Let's see... 250 million cars in America... need 4 tires per car... need new tires every 2.5 years. 400 million tires a year... $1.4 billion dollars a year... 10,000 worker jobs saved... $140,000 dollars per worker-job per year.

Looks like we could (a) let the Chinese sell us tires, (b) tax each tire by $2.50, (c) pay each tire worker who loses his or her job $100K a year, and we come out ahead: American households have more money to spend on other things, China has more jobs to help what is still a very poor country grow, and tire workers have higher incomes and more leisure as well.

But, you say, it would be stupid to impose a $2 a tire tax and use the money to pay each laid-off tire worker $100K a year.

That's the point: when the policy you are adopting is worse for everybody than a policy you agree is stupid, the policy you are adopting is best characterized as really stupid.

But, Meyerson says, not to impose the tariff would violate the rule of law:

The ITC found this a clear violation of a provision in the Trade Act (Section 421), added with Beijing's consent during the negotiations preceding Congress's 2000 enactment of Permanent Normalized Trade Relations with China...

China isn't doing anything wrong. For Chinese manufactures to sell us tires is not against the law. To say that China has committed a "clear violation" of the law is to badly misstate the case.

What is the case is that:

Section 421... allowed the U.S. government to levy tariffs on surging Chinese imports that were eviscerating an American industry... [and it] was a key argument in persuading Congress to permanently normalize trade relations...

§421 gives the U.S. the right to impose tariffs in response to a surge. It doesn't make the surge a crime, or a violation. And it doesn't require the U.S. to impose tariffs--especially if imposing them would be a really bad idea for U.S. consumers.

But, Meyerson says, we can't do the right thing now because imposing tariffs might be the right thing to do at some pointi in the future:

The implications of Obama's decision go well beyond tires. Section 421 was created to provide some protection for American workers while allowing China entry to our markets. If Obama opts not to enforce it, why would anyone concerned about American jobs believe such provisions in future trade agreements? Why would U.S. manufacturers maintain their domestic production if they know that none of the legal protections they've been promised will ever be invoked?... Endorsing the ITC's recommendation would not only honor his campaign promises and fulfill the mandates of our trade laws, but would also allow him to rescue the very Americans who, rightly or wrongly, have felt left out of his efforts to save the nation's economy.

I have a proposal. The president should, in each case, do the right thing. When there are net benefits to the United States from exercising its §421 rights, it should exercise them. When there are net costs to the United States from exercising its §421 rights, it should not exercise them.

That would be real change we could believe in.