Chinese tires provide test case for Obama trade stance

Chinese tires provide test case for Obama trade stance

Even after the U.S. International Trade Commission found that China was guilty of flooding U.S. markets with steel or pipe, it was difficult to get the Bush Administration to follow up with tariffs or other restrictions designed to protect U.S. producers against a flood of imports.

There were six so-called Section 421 cases filed during the previous administration claiming unfair trade practices by China. In four of those, the ITC found circumstances that warranted action, but in each instance, President George W. Bush exercised his discretion to deny relief.

Within the next three weeks the first 421 case will reach the desk of President Barack Obama. By a 4-2 vote, ITC commissioners have found that a dramatic increase in low-priced car and light truck tires from China was beyond the boundaries of normal trade. The imports increased 215 percent in volume from 2004 to 2008, hitting 46 million tires worth $1.7 billion in 2008, according to a complaint filed with the ITC by the United Steelworkers Union.

Plants closed, jobs lost

The complaint alleged that 5,100 U.S. tire workers lost their jobs when Goodyear, Continental Tire and Bridgestone/Firestone closed U.S. plants. The complaint was opposed by tire retailers, who said that the increase in Chinese imports simply reflected a demand by American consumers for low-cost tires.

The ITC is likely to recommend a combination of quotas and tariffs to curtail the imports from China. The complaint asked that the 2004 numbers be used as a base, with gradual annual increases allowed in the future.

Obama is expected to approve the restrictions, and that action will be met with howls of protectionism.

There is no doubt that protectionism can be dangerous to a nation’s economic health — indeed, to the world economy. But is also dangerous for the United States to be so open to imports that domestic production is abandoned and American jobs are lost forever. Those who would accuse Obama of opening a trade war, might want to consider that we are already in a trade war, and we are losing, especially to China.

The U.S. trade deficit widened again in April as exports dropped to the lowest level in almost three years. The gap between imports and exports grew 2.2 percent to $29.2 billion, the Commerce Department reported. Foreign demand for U.S. goods dropped 2.3 percent.

The deficit so far in 2009 is lower in real dollars than recent years, but only because both imports and exports have dropped due to the worldwide recession. But we continue to import more than we export, to the tune of $120 billion during the first four months of the year. More than half that deficit, $67 billion, was with China.

At that rate, the trade deficit for the year could be the lowest in a decade, close to the $365 billion mark of 2001 and less than half the high of $760 billion in 2006.

Trillions with a ‘T’

Still, over the last five years, the total trade deficit was $2.75 trillion dollars. More than $1.1 trillion of that was with China.

The United States has had 25 years of trade deficits with China, from a miniscule $6 million in 1984 to a staggering $268 billion in 2008.

China will undoubtedly complain that the United States is being unfair (despite a trade advantage that is still on track to hit $200 billion this year) and free traders will say the Obama administration is being unwise.

But experience has shown that if China is allowed to flood U.S. markets with common pipe, it will start breaking into the higher priced oil-country pipe markets next. After it gains domination of the low-priced car and truck tire market, it will move into the specialty, farm and construction tire markets (which should concern this area, home of the 90-year-old Denman Tire Co., which is struggling for survival).

Trade is supposed to be a two way street, and the ITC should be the cop that keeps traffic moving in both directions.