Eleven Reasons the Obama Administration's Chinese Tire Decision Was a Bad One

At least the administration was embarrassed, releasing its decision late on Friday to minimize publicity. 

The Obama administration has decided to impose import duties of 35% on imports of low cost Chinese passenger and light truck tires (U.S. to Impose Tariff on Chinese Tires, Wall Street Journal).  These are scheduled to drop to 30% in a year, and 25% in another year.

Here are eleven reasons this is a bad idea:

1. It limits competition in the U.S. tire market, and it will increase costs to U.S. consumers.  Tires will cost more.
   
2. It will increase the costs of making things in the U.S.  Things made with tires (cars and trucks) will cost more.
   
3. It will increase the costs of our exports.  Anything we make with these tires and then export will cost more.
4. The tax is imposed only on tires from China.  Foreign producers in other countries, who will not be subject to this tax, will benefit.  Actually, this will limit the damage done to U.S. consumers and producers, but then, what was the point?
   
5. It is counterproductive to impose a tax on consumers, increase the prices they face, and reduce their incomes and consumption, during a serious recession.
6. This is a regressive tax, it will fall proportionately harder on poor and middle-income people than on the rich.
   
7. The world has been struggling to avoid the reductions in demand associated with protectionism during this recession.  This action undercuts these efforts. 
   
8. The Chinese can retaliate with respect to other U.S. goods.
   
9. This may violate administration promises not to impose new taxes on persons with lower incomes ("Middle class families will see their taxes cut – and no family making less than $250,000 will see their taxes increase.").  This promise probably was only meant to apply to the income tax, and was itself a bad promise in any event.  But what is the value of the promise to taxpayers if the protection it offers only applies to one tax and not to others?  This new hidden and regressive tax on U.S. consumers wasn't the place to start breaking the commitment.
   
10. We need Chinese help on a lot of issues, its not worth imperiling that for 5,000 jobs (see below).  As Jonathan Weisman noted in the Wall Street Journal story on this issue: "The United States needs China to help float a U.S. deficit expected to reach $1.56 trillion this year. Mr. Obama is also likely to seek new sanctions against Iran to combat its nuclear program, and China's vote on the United Nations Security Council is pivotal."
11. Holding workers in industries making low cost tires doesn't keep them in an industry in which we are likely to be able to compete internationally.  Even if you think industrial policy is a good idea, this is bad industrial policy.

The request for the tariffs (tax increase) was pressed by labor interests, but oddly, according to the Wall Street Journal story above, not by the tire industry: "Notably, the tire industry didn't join the case -- tacit recognition that it has long ago left the US market for the low-end tires at issue."

The number of jobs lost in recent years seems small: "Meanwhile, four U.S. tire plants closed in 2006 and 2007. Three more are planned for closure this year. There were 5,168 fewer workers in the U.S. tire industry in 2008 than there were in 2004."

Cross-posted from The Custom-House.

Edit Sept 19 - editorial but not substantive change to point 9.

Comments

[dsi r4]

One effect of the protectionist policy the graph does not illustrate, and perhaps the most serious negative impact of the tariff on America, is the response the Chinese are likely to take to what they interpret as a violation of existing free trade agreements between the US and China.

[truck rental]

I appreciate Obama's attempt to improve the economy and make the U.S. once again be strong and steadfast as ever.
But these battles with the East may not bring positive news. It is important to think about this issue twice, Isn't there really a quality alternative? Won't it hurt people? May all of this just a matter of ego?

I hope everything is for good.

[Conrad Harris]

Net costs outweigh the net benefits. Too bad our president and most politicians don't know some basic principles of economics.