Will Obama rue his trade tariff on China's tires?

The president's claim that his restrictions would only further free trade falls flat. Here's why.

In a break from recent presidents, Barack Obama has taken America down a new economic path by proposing a novel idea: The US can expand free trade by sometimes restricting it.

In a way, he's saying that less trade in some instances might mean more trade.

He laid out his reasoning after announcing last week that he placed a 35 percent tariff on imports of vehicle tires from China.

President Obama, of course, had other reasons for this action.

Tire imports from China have surged 10-fold from 2000 to 2008. The resulting decline in US-based tiremaking has forced layoffs of thousands of workers, many of them in the United Steelworkers union – a key political supporter of Obama in the healthcare debate.

But politics or jobs wasn't the main reason that Obama gave for his action.

He said he wants to "further expand trade" by showing the world that the US will credibly enforce its own trade rules. One of those rules is a specific legal provision that allows a president to block surges in Chinese imports if they simply disrupt an American industry.

Obama's reasoning in furthering trade through tariffs may sound like doublespeak, but that provision, known as Section 421 of the Trade Act, was actually agreed to by China when it joined the World Trade Organization (WTO) in 2001.

With a population that is a quarter of humanity, China can easily become an elephant in trade, overwhelming particular markets with a flood of inexpensive exports. That is even more true because China, in its race to industrialize, took a cue from Japan and has focused on exports for job growth. (In its complaint about the US tariff, China said it was unfair for Obama to worry about US jobs while not also being concerned about unemployment in China.)

Unlike Obama, the Bush administration rejected several appeals to impose tariffs on Chinese import surges, continuing an American tendency to err on the side of free trade. Obama now says such nonaction hurts trade rather than helps it. (In fact, his aides say a president is required by Section 421 to take action – a claim that is widely disputed.)

The reason for Section 421 is to give a specific US industry time to adjust to a new wave of competition from China. This tire tariff will last only three years and the penalty declines each year, presumably to help the US tire industry adjust.

But there's a big hitch in Obama's reasoning. The US tire manufacturers are against the tariff. They make low-end tires in Chinese factories while making premium ones in the US. Unlike their union workers, they, like many US manufacturers, have learned how to adjust to a more competitive globalized economy.

In addition, it is likely that Mexico or other low-wage countries will simply step up their tire exports to the US and fill a void left by fewer or more expensive Chinese tires. In the end, Americans who have worked in tire factories will need to retrain themselves for higher skilled jobs in emerging fields where the US is more competitive.

Meanwhile, this tariff means US consumers will pay more for tires.

If the tariff ends up being for naught, then it is worth asking if Obama's action hurts the American interest in free trade by sending the wrong signal to other countries. China is already threatening retaliation on imports of American chicken products and auto parts.

During the global economic slowdown, many countries have sought to block exports to save domestic industries. Unless the US, as the world's historic leader in free trade, stands up against this trend, such growing protectionism might slow a recovery in the world economy.

It's unlikely that the tire tariff will be the equivalent of the 1930 Smoot-Hawley Act. That law restricted imports and triggered worldwide protectionism, helping deepen the Great Depression.

But if Obama truly wants to further free trade, he needs to counter his action on Chinese tires by pushing Congress to pass three pending bilateral trade agreements with Colombia, South Korea, and Panama. And he should revive talks known as the Doha round to achieve a new global trade pact.

More trade will mean more trade.

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