Chinese Tire Imports Hit With a 35% Tariff

Few economists would recommend raising import tariffs anytime, let alone in the middle of the worst economic downturn in 80 years.  Last night, late enough to elude most media coverage, President Obama slapped a 35% tariff on Chinese tire imports.  The Washington Post report was the first I saw.

Over the past five years, U.S. tire manufacturers have cut 5,000 jobs as China’s U.S. market share tripled.  The United Steelworkers petitioned the U.S. International Trade Commission on April 20, 2009 for relief under Section 421 of the Trade Act of 1974, which provides for “safeguards” against import surges.  The June 2, 2009 hearing featured quite an array of witnesses, starting with members of Congress urging action.  On June 29, the ITC recommended a 55% tariff in the first year, 45% in the second year, and 35% in the third year.  President Obama had until September 17 to accept, reject, or modify the ITC’s recommendation, and he chose to impose tariffs of 20% points less than the ITC recommended.

Adam Smith opposed tariffs in his The Wealth of Nations in 1776 because they made everyone except the protected industry worse off.  As England’s Commissioner of Customs, he had direct experience.  The debate has raged ever since.  This Economic Policy Institute testimony of June 16, 2009 offers counterarguments that China’s currency manipulation, subsidies, and other unfair trade practices justify retaliation.

As much as I’d like the world to revolve around the best economic analysis, let’s face it, politics trumps.  President Obama won office last November with strong union support, and he can’t tell 850,000 United Steelworkers they made a mistake.  On March 5, 2002, President Bush, a very strong supporter of free trade, imposed tariffs of 8% to 30% on imported steel, so this is hardly a partisan issue.  President Bush terminated his steel tariffs ahead of time on December 4, 2003.  We’ll see if the economy recovers enough to allow President Obama to do the same.

About Pete Davis 99 Articles

Affiliation: Davis Capital Investment Ideas

Pete Davis advises Wall Street money managers on Washington policy developments that affect the financial markets. President of his own consulting firm since 1992, Davis Capital Investment Ideas, he draws on 11 years of experience as a Capitol Hill economist with the Joint Committee on Taxation (1974-1981), the Senate Budget Committee (1981-1983), and Senator Robert C. Byrd (1992). He worked in the House and Senate, and for Republicans and Democrats.

Davis brought the first computer policy model, the Treasury Individual Income Tax Model, to Capitol Hill in early 1974, when he became a revenue estimator on the Joint Committee on Taxation. He formulated the 1975 rebate, the earned income tax credit, the 1976 estate tax rates, the 1978 marginal tax rates, and the Roth-Kemp tax cut. He left Capitol Hill in 1983 for the Washington Research Office of Prudential-Bache Securities, where he advised investors for seven years.

Davis has long written a newsletter on the Washington-Wall Street connection for his clients; Capital Gains and Games is his first foray into the blogosphere.

Visit: Capital Gains and Games

3 Comments on Chinese Tire Imports Hit With a 35% Tariff

  1. let me get this straight, the Chinese who have broken every trade agreement, every patent law under the sun, imports tainted toys, tainted baby formula (that killed countless children), and tainted pet food (that killed thousands of pets in the US), that same country is arguing about a tariff when their trade imbalance has caused an economic meltdown worldwide. Yes the imbalance of trade from China has caused the economic crisis in the US and abroad.

  2. Obama is a total idiot for making enemies with the largest nation on earth, a nuclear armed nation, with the world’s largest military — by far.

    This is how cold wars start.

    Bush made enemies with some backward Muslims in caves and a guy (Saddaam Hussein) who’s ass we could actually kick.

    Obama makes enemies with nuclear armed China and its largest military on earth.

  3. It is a misnomer to call this protectionism when it is in fact levelism.

    Levelism merely seeks to neutralize the advantage gained through lower wages, lower environmental controls and manipulated exchange rates.

    You will note that there were no tariffs imposed upon the European Union – which has high wages, high environmental controls and a free floating currency.

    Levelism is an approach that does not violate conservative principles.

    http://corporate-statesmen.org/images/LEVELISM.pdf

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