Obama continues U.S. trade war

According to the Financial Times:

The US will impose tough new duties on Chinese steel piping imports, raising tensions with its biggest trading partner and emerging geopolitical rival.

With Chinese piping imports worth $2.8bn in 2008, the case is the biggest against China brought before the International Trade Commission, a US trade body, but follows other US actions to counter a flood of goods that Washington claims China is exporting at below market prices.

Friction between the US and China has been building this year after disputes over tariffs on tyres, cars and chickens. China denounced a move by the US earlier this year to tax imports of Chinese car and light truck tyres as a “serious act of trade protectionism”.

Something is seriously wrong when China denounces protectionism and the U.S. defends it.

Tire Tariff Cost US About $1.35 Billion

The consequences of Obama’s 35 percent tariff on imported Chinese tires are now starting to become apparent. An Associated Press article yesterday (via Pushing Possibilities) identified a few of the explicit and implicit consequences of the tariff.

Explicit costs include:

Under the government’s new tariff, which went into effect in September, a set of Chinese tires that would have cost $280 now cost nearly $100 more.

Implicit costs include:

Jennifer Stockburger, a tire test engineer for Consumer Reports, says six of the top ten all-season tires recently tested by the magazine were made in China by major manufacturers.

To calculate the true cost of the tariff, Pushing Possibilities conducted a cost-benefit analysis:

17% of the tire market is made up of Chinese tires.  Tire sales for 2008 was around $27 billion, which means that about $4.6 billion is Chinese tires. With an average price of $280 for Chinese tires pre-tariff, the total quantity of Chinese tires sold would amount to 16.4 million.  With a $100 price increase, assuming that domestic tire price increases offset the tariff increase, U.S. consumers are expected to lose out on a net savings of over $1.6 billion.  And that of course does not take into account the implicit cost of quality loss.

The tariff was expected to stop the loss of employment in the U.S. tire industry.  By assuming there would be a benefit of saving 5,000 jobs in the tire industry, even at the median U.S.  income, that only amounts to a very large estimate of over $250 million of saved income.

Therefore, Obama’s tire tariff cost the U.S. over $1.35 billion dollars.

Trade liberalization associated with a decrease in child labor and an increase in schooling in Indonesia

Robert Sparrow and Krisztina Kis-Katos just released a new study called ‘Child work and schooling under trade liberalization in Indonesia‘ where they conclude that trade liberalization in Indonesia resulted in a drop in child labor and an increase in schooling. Below is the abstract:

We examine the effects of trade liberalization on child work and schooling in Indonesia. Our estimation strategy identifies geographical differences in the effects of trade policy through district and province level exposure to reduction in import tariff barriers. We use seven rounds (1993 to 2002) of the Indonesian annual national household survey (Susenas), and relate workforce participation and school enrolment of children aged 10-15 to geographic variation in relative tariff exposure. Our main findings show that increased exposure to trade liberalization is associated with a decrease in child work and an increase in enrolment among 10 to 15 year olds. The effects of tariff reductions are strongest for children from low skill backgrounds and in rural areas. However, a dynamic analysis suggests that these effects reflect the long term benefits of trade liberalization, through economic growth and subsequent income effects, while frictions and negative adjustment effects may occur in the short term.

Economic vandalism: Barack Obama and free trade

The Economist has a timely and spot-on article on Obama’s “string of ominously protectionist policies” highlighted recently by his decision to impose a 35 percent tariff on imported Chinese tires. The magazine writes:

This newspaper endorsed Mr Obama at last year’s election (see article) in part because he had surrounded himself with enough intelligent centrists. We also said that the eventual success of his presidency would be based on two things: resuscitating the world economy; and bringing the new emerging powers into the Western order. He has now hurt both objectives.

…The tyre decision needs to be set into the context of a string of ominously protectionist policies which started within weeks of the inauguration with a nasty set of “Buy America” provisions for public-works contracts. The president watered these down a bit, but was not brave enough to veto. Next, the president stayed silent as Congress shut down a project that was meant to lead to the opening of the border to Mexican trucks, something promised in the NAFTA agreement of 1994. Besides these sins of commission sit the sins of omission: the president has done nothing at all to advance the three free-trade packages that are pending in Congress, with Colombia, Panama and South Korea, three solid American allies who deserve much better. And much more serious than that, because it affects the whole world, is his failure to put anything worthwhile on the table to help revive the moribund Doha round of trade talks. Mr Bush’s tariffs, like the Reagan-era export restraints on Japanese cars and semiconductors, came from a president who was fundamentally committed to free trade. Mr Obama’s, it seems, do not.

Click here to read the full article.

Do Economists Agree on Anything? Yes!

Several years ago, Greg Mankiw posted on a column by Robert Whaples in which he “surveys PhD members of the American Economic Association and finds substantial agreement on a wide range of policy issues” from free trade to educational vouchers.

The information below shows his findings:

• 87.5 percent agree that “the U.S. should eliminate remaining tariffs and other barriers to trade.”
• 85.2 percent agree that “the U.S. should eliminate agricultural subsidies.”
• 85.3 percent agree that “the gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged.”
• 77.2 percent agree that “the best way to deal with Social Security’s long-term funding gap is to increase the normal retirement age.”
• 67.1 percent agree that “parents should be given educational vouchers which can be used at government-run or privately-run schools.”
• 65.0 percent agree that “the U.S. should increase energy taxes.”

And, finally, the topic that generates the most consensus:

• 90.1 percent disagree with the position that “the U.S. should restrict employers from outsourcing work to foreign countries.

Click here to view the original article.

Click here to view the data.

Tire Industry Opposed ‘Punitive Tire Tariff’

Mark J. Perry points to an interesting New York Times article that claims the “punitive tire tariffs” against China were in fact opposed by the domestic tire industry (Goodyear and Cooper):

Last Friday night, Mr. Obama, responding to a complaint by the United Steelworkers, imposed a 35 percent tariff on Chinese tires for cars and light trucks. China quickly responded by threatening to retaliate against American auto products and chicken meat, raising fears of a possible trade war, an especially unwelcome prospect just as the global economy is struggling to recover.

China has deplored the administration’s decision, suggesting it caved to domestic support for protectionism. The Tire Industry Association, which represents American tire retailers, said the decision was ill-advised and would lead to higher prices for consumers.

Asserting that the decision would hurt tire retailers, the association said it “believes this was a politically motivated decision that will end up costing more jobs than it saves. These tariffs will not bring back the jobs that the union claims have been lost.”

Responding to New Tire Tariff, China Targets American Auto Parts and Chicken Products

Just days after Obama bowed to union pressure and imposed a 35 percent tariff on Chinese tires, China has retaliated:

Chinese officials lambasted the decision, accusing the U.S. of engaging in protectionism and violating World Trade Organization rules. They argued that the U.S. tire industry had long ago abandoned the low-end market that China covets and said Chinese tire imports had increased only 2.2% between 2007 and 2008, state media reported.

By announcing the probe of U.S. imports, the Chinese Ministry of Commerce signaled that it was prepared to challenge Obama’s decision.

“Recently, the commerce ministry has received word from domestic industries indicating that [chicken and auto] products had entered our nation’s markets via dumping, subsidies and other unfair trade means,” the ministry said on its website, giving no details about the specific products.

James Zimmerman, a partner in the law firm of Squire Sanders & Dempsey in Beijing, recently told the Los Angeles Times, “American business in China should be prepared for what might be a zealous retaliatory response from China, which might impact a broad range of U.S. commercial interests.” Just what we need.

Obama To Impose New Protectionist Tariffs

Market Watch reports:

The Obama administration will impose stiff tariffs on imports of Chinese-made tires after finding that a surge of imports has disrupted the U.S. domestic market.

President Barack Obama signed an order on Friday to impose the special punitive tariffs for three years, the White House announced.

The action is the first major trade enforcement action of his presidency and comes less than two weeks before a high-profile summit of the leaders of the Group of 20 nations, including China.

This is a highly disappointing victory for protectionists. Henry Hazlitt gives a short yet accurate anecdote on one of the consequences of introducting tarriffs:

Suppose that in our country we import woolen sweaters from country A, and the sweaters sell for $25.

The local sweater industry petitions the government to impose, say, a $5 tariff (duty) on the imported sweaters. They argue that they cannot produce woolen sweaters for $25 and need this tariff in order to compete with country A. So, the government imposes a tariff.

As a result, the local sweater industry is able to employ many people. However, the consumers now pay $30 for the same quality sweater. The consumers no longer have that $5 to spend on other things. Thus the local sweater industry thrives, but a hundred other industries shrink.

You can see the sweater employees going to and from the factory each day, and you think, “The tariff was a good idea, it has given employment to people in our country.” But you don’t see the hundred other industries that have shrunk and all the lost jobs from that.

Click here for Professor Mark J. Perry’s “Simple Economic Analysis of the Tire Tariff: Americans Will Be Punished By the Punitive Tariffs.”

UPDATE: Responding to New Tire Tariff, China Targets American Auto Parts and Chicken Products