By: Ry Parry
In an announcement made Friday, September 11th at 9:00 PM, President Obama voiced his decision to implement a 35% tariff on all imported tires from China (nearly all of which are low-end). At a time when relations between the US (the worlds largest debtor) and China (the worlds largest creditor) must remain positive, this tariff seems to be a very poor decision.
As the primary driving force behind the world economy, the United States must make rational decisions, especially during a world recession. Obama’s new tariff directly violates the G20 leaders’ decision to “avoid protectionist measures at a time of great economic peril”. It not only puts a strain on the relationship between the US and China, but the benefits gained are scarcely even noticeable. With burgeoning international trade, US tire companies have largely given up making low-end tires, preferring to import them and specialize in high-end tires. This tariff is likely to harm mainly the consumer, who will be forced to buy more expensive tires from Mexico, India, Indonesia, and Brazil. Very little money will be fed back into the domestic economy.
Having such a small impact on the welfare of American tire producers, it is hard to understand why Obama has chosen to institute such a policy. Obama recently defended his decision, saying that he was merely enforcing trade laws; however, the International Trade Commission has found no proof of China violating any trade laws, so Obama’s decision is at the very least premature. Obama had promised to enforce trade laws more forcefully than President Bush had, so this new tariff may simply be an effort to appease those who lobbied for protection. Whatever the real reasons, I doubt that this new tariff, and all the consequences that come with it, is justified.
3 comments:
As an empirical question, I think the imposition of these tariffs is not particularly puzzling. The benefits to the domestic tire industry of increasing the price of foreign competitors' tires through an immediate 35% tax is pretty immediate and quite clear, and the United Auto Workers' union, a major ally in the fight for health care reform, has been strongly in favor of the tariff.
That said, I think it is worrying. Protectionism is not good.
Sorry, I should have been more clear on this in my entry.
The US imports low-end tires from China. US tire companies produce high-end tires. Because low and high end tires are not substitutes, the tariff on Chinese tires will force American consumers to get their low-end tires elsewhere, such as India or Mexico. All in all consumers are just buying tires from other countries, rather than China. Very little money is funneled back into the domestic economy.
I think the tariff will help domestic producers of tires. Maybe more low-end tire production will start to occur. It may be more expensive for tires now, but it may help increase domestic spending overall, right?
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