Tire Tariffs Send a Bad Message

Obama has sent out a dangerous signal to the whole world: The U.S. is the typical trade protectionist. This may force other countries to adopt trade protectionism, affecting global trade and economic recovery.

On Sept 11, President Obama signed a tariff restriction on China’s tire exports to the U.S. Obama did this regardless of Sino-U.S. appeal and opposition. Implementing such punitive tariffs commits four big mistakes, and brings about a risk that should not be underestimated.

First, the reason for imposing this penalty on China is arbitrary and hard to be persuasive about. In April, due to the unilateral launch of the tire protectionism issue by the U.S. United Steelworkers (USW), the sharp increase in Chinese tire imports was blamed as the root cause for American workers’ unemployment. In reality, this is far fetched and does not keep in accordance with logical fact.

In previous public hearings, the Chinese mentioned that the cause of American tire factory closings was not due to the increase of China’s tire exports to the U.S., but rather as a result of an upgrade in the U.S. tire industry. Moreover, for the most part, Chinese tires are a low-end product, and do not constitute a high-end threat to the U.S. tire territory. The American tire industry’s unemployment phenomenon is result of the long term depression of American tire industry.

This sounds similar to the blame put on China for the financial crisis, when things like “the origin of the U.S. financial crisis stems from the fact that Chinese people like to save money” were said. In order to alleviate the pressure from high unemployment, Obama has chosen to approve USW’s reasoning, not only appearing small-minded, but also lacking in careful consideration of Sino-U.S. economics and long-term trade benefits.

The next mistake is that Obama is playing high stakes politics. The Chinese tire case is the Obama administration’s first instance of conducting an investigation of China. The above-mentioned plan has political factors that cannot be underestimated. Under the financial crisis, high unemployment rates in the U.S. continue to be a very sensitive political topic. During the campaign period there was always mention of protecting the manufacturing industry workers. In addition, Obama’s health care reform needs vigorous support from the U.S. trade unions (blue-collar class), which gave him impetus to take a risk on the tariff issue. The question becomes then, in simply getting help from the Chinese tire tariff issue, will Obama truly alleviate the high unemployment rate, or have his health care reform package passed? In reality, however, such a response to U.S.-Chinese trade cooperation causes obvious damage.

Thirdly, the trade-off in benefit is not worth the harm it will cause. With the approval of the Chinese tire tariffs, Obama has clearly neglected – with the exception of the U.S. labor unions – many political and economic issues. In this case, only U.S. tire companies are on the suit for the complaint. The reason is very simple: Among China’s tire exports to the U.S., a large portion is made by U.S. tire manufacturers in Chinese factories or by Chinese original equipment manufacturers (OEM) for U.S. companies.

Tire protectionism is simply inconsistent with U.S. manufacturing company benefits. Due to tire workers’ labor negotiations, American manufacturers are faced with a lot of pressure and have chosen to be silent in the protectionism case. Practically speaking, this undertaking will endanger the U.S.’s role in the Chinese tire business, the U.S. logistics industry, the automobile industry and even the U.S. consumers’ overall benefit from Chinese products.

Finally, Obama is harming his own image, which is bound to cause trouble in the future. Previously, Obama was praised as a champion of free trade by denouncing trade protectionism. Yet he authorized the request for Chinese tire protectionism. Its negative effect will reach beyond the tire industry and will lead to demonstrations.

The third G20 summit will be held on Sept 24 in Pittsburgh, U.S. Trade protectionism has been denounced by various countries at the G20 summit. In terms of the Chinese tire protectionist case, Obama has sent out a dangerous signal to the whole world: The U.S. exercising trade protection could force other countries to adopt the same policies, in turn affecting global trade and economic recovery. This will once more cast a shadow on the U.S.’s international prestige and integrity.

Obama’s behavior has led people to remember his predecessor, Bush, and a similar steel and iron issue. In 2001, after Bush took office, he imposed a 30 percent customs tariff on imported steel. But as a result of being faced with the trade partner’s formidable pressure, he was compelled in December 2003 to abandon this one-sided, biased practice. But this brought about serious consequences: the steel tariff issue gravely weakened the U.S. in global trade negotiation at that time.