Averting a Tiresome Trade War

President Obama may think of himself as a Robin Hood of sorts--taking from the rich, giving to the poor. But what happens when a privileged constituency of the Obama administration--organized labor--forces President Obama to choose some working Americans' jobs over others and break campaign promises to not hike taxes on the middle class? Will the president stand up to the unions?

Candidate Obama promised to enforce the U.S. trade laws--explicitly including the so-called China safeguard now before him brought by the United Steel Workers (USW) concerning imports of Chinese tires for cars and light trucks. The China safeguard, similar to the global safeguard and a condition to China's 2001 World Trade Organization accession, allows the United States to legally place restrictions on market-disruptive Chinese imports to provide the injured domestic industry an opportunity to return to profitability. Siding with the USW in this case, however, will not assist the U.S. tire industry or give USW workers their jobs back. Rather, American consumers and downstream U.S. tire businesses will suffer, and trade relations with China will be needlessly damaged. As valuable as a safeguard's legal "escape hatch" is in warranted cases, this case represents an egregious subversion.

Critics of the Chinese tires safeguard say that it will amount to a $600-700 million tax on U.S. consumers and thousands of lost jobs. If President Obama decides to go forward with the up-front draconian 55 percent tariff, he will essentially have broken his campaign promise to not raise taxes on middle class Americans. The cost of generally cheaper Chinese tires as well as higher-priced U.S. and other foreign made equivalents will rise. As 80 percent of consumer tires sold in the United States are replacement tires, working Americans will either have to shell out the extra money or put off replacing their tires, creating safety hazards on the road. Moreover, some 25,000 Americans employed by tire distributors, wholesalers, and retailers will likely lose their jobs because of the resulting drop in demand for tires. That's up to 25 jobs lost for every potential union job saved. In all likelihood, all 26 jobs will be gone.

Instead of pandering to the USW, President Obama should take the most legally-justifiable and economically-effective action here: grant Trade Adjustment Assistance (TAA) for the displaced tire workers so that they can re-tool their skill sets and re-enter the workforce as many other American workers have done.

The USW brought this safeguard action blaming Chinese tire imports for 7,000 layoffs at tire plants countrywide. The USW could legally petition for this action under the trade laws, but U.S. producers, which the USW is claiming are injured, are not supporting the case and have been conspicuously absent from the entire administrative proceeding. In fact, U.S. tire producers have indicated that they would neither re-open the shuttered U.S. factories nor re-hire laid-off USW workers even if the safeguard were enacted.

Despite suffering from declines in demand attributable to devastating economic conditions and the near demise of the U.S. auto industry, U.S. tire producers have avoided involvement in this case for a simple reason: they made strategic business decisions to focus on manufacturing premium, name-brand tires in the United States, while moving most production of small size and lower-value tires to lower cost centers like China. Notably, 17.4 percent of imports from China and 72.3 percent of all other U.S. tire imports are made by U.S. producers abroad. If the safeguard is enacted, U.S. and other foreign producers will simply ramp up low-cost production abroad to pick up the slack. For the USW to claim that the safeguard will allow U.S. workers to return to previously abandoned production lines is simply fanciful.

The president is required to determine whether this safeguard action is in this country's national interest, not simply of an interest group which is merely seeking to set a precedent for future protectionist actions. Instead of pandering to the USW, President Obama should take the most legally-justifiable and economically-effective action here: grant Trade Adjustment Assistance (TAA) for the displaced tire workers so that they can re-tool their skill sets and re-enter the workforce as many other American workers have done.

Taking the TAA route and avoiding the looming domestic fallout will have the added benefit of averting the souring of U.S.-China economic relations. Chinese tire imports are dwarfed by imports from other countries, yet tires from the likes of Brazil and India are not on the chopping block. Amidst the rising tide of protectionism in Washington, commitments to enhance U.S.-China cooperation through the Strategic & Economic Dialogue will be exposed as mere rhetoric. There are a plethora of legal actions we can take against China at the WTO to reduce market barriers--let's not waste our time sparking trade wars on actions that serve no purpose.

Just one week after he is required to make his decision in this China safeguard case (although it is rumored he may do so before), President Obama will meet with world leaders, including Chinese President Hu Jintao, at the G-20 summit in Pittsburgh. Perhaps the president will find a compromise--pacifying the USW but choosing a less market-distortionary remedy such as a quota or the like. Whatever happens, one need only recall that Pittsburgh is also home to the USW and promises are promises. But, whose promise will President Obama choose to keep--to the USW or the American people? The only correct answer is obvious.

Neena Shenai is an adjunct scholar at AEI.

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