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.