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.